Using a Life-Cycle Model to Evaluate Financial Literacy Program Effectiveness
Employees and their families are increasingly responsible for their own financial security. At the same time, financial markets have become more complex, offering products that can be difficult to understand. Are Americans equipped to handle this new financial landscape?
Prior research provides conflicting conclusions regarding the effectiveness of financial literacy programs, particularly those offered in the workplace. To explain such differences in evaluation and outcomes, this study uses conventional program evaluation econometric techniques and simulated data to account for selection and treatment effects.
The researchers used a stochastic life-cycle model with endogenous financial knowledge accumulation to investigate how financial education programs optimally shape key economic outcomes. This approach enabled them to measure how such programs affect wealth accumulation, financial knowledge and participation in sophisticated assets (e.g. stocks) across various consumers. They then applied conventional program evaluation econometric techniques to simulated data, distinguishing selection and treatment effects.