Education reforms have had no impact on kids'' ability to save, invest or avoid debt problems

Changes in the law to give children additional schooling didn''t make them any better at managing their personal finances, according to research by Mirko Moro, Alberto Montagnoli and Daniel Gray, to be presented at the Royal Economic Society''s annual conference at the University of Bristol in April 2017.

The authors analyse data from the British Household Panel Survey and the Understanding Society survey to examine whether children who had an extra year of schooling after changes in the law in 1947 and 1972 saved, invested and managed debt differently to other, similar children. The answer, when it comes to managing money, is no, although their education gave them better financial outcomes in general.

The authors conclude: ''Our research shows that despite increases in general education having significant positive effects on a wide variety of aspects of people''s life, they have had limited impact on their financial decision-making. What''s needed in addition is specific education to improve financial literacy.''


Increases in general education have limited impact on financial outcomes

An additional year of general schooling has a limited impact on a range of financial behaviours in later life. This is according to research conducted by Mirko Moro, based at the University of Stirling, Alberto Montagnoli and Daniel Gray, both based at the University of Sheffield.

Their study, which draws on data from two nationally representative surveys of the UK, examines the relationship between education and financial decision-making by identifying the causal relationship between years of schooling and a range of financial outcomes.

The researchers use compulsory changes in the school leaving age to explore the effects of an additional year of schooling on a range of household''s financial behaviours. They conclude that, financial education should be promoted in order to secure better financial decision-making as opposed to general education.

Since the financial crash of 2008, policy-makers have promoted the need for households to adopt a more responsible financial position – that is, increasing levels of saving and reducing debt accumulation. Consequently, understanding what influences households'' financial decision-making is of increased importance.

One important aspect of this is that more educated and better-informed individuals are a necessary condition to promote more sound financial outcomes. The correlation between education and a range of household financial outcomes has been well established, with higher levels of education being associated with better financial decision-making.

But there remains sparse and inconclusive evidence on the causal relationship between education and financial decisions. The results give support to the growing evidence relating to financial literacy, in that general education has a limited impact on financial decision-making.

The authors analyse two data sources, the British Household Panel Survey and Understanding Society, and exploited two changes in the compulsory schooling ages in the UK: the increase in the compulsory school leaving age from 14 to 15 years of age in 1947 and the subsequent increase in the compulsory school leaving age from 15 to 16 in 1972.

These reforms had a significant impact on the average length of schooling for the affected cohorts. The study explores a variety of financial outcomes including, savings behaviours, investment incomes and debt accumulation. Generally, comparing outcomes for individuals born shortly before and after these reforms, the results reveal that those with additional levels of education did not behave in a systematically different way to those who do not complete additional education.

The research however does provide evidence that the 1947 reform had some impact on the savings behaviour of women. This outcome could indicate that this reform had a far-reaching impact on women, as they may have been potentially the most influenced by this schooling reform, as it was arguably coincided with wider social change.

This research shows that despite educational reforms having significant positive effects on a wide variety of aspects of one''s life, it does not have any impact on individuals'' financial decision-making. Consequently, this research advocates the promotion of specific financial education in order to improve individual financial decision-making.

Such initiatives have been increasing in recent years, for example, financial education in the UK has been taught to 11-16 year olds as part of citizenship since 2014, and as part of core maths, which aims, among other things, to increase confidence with managing personal finances. It is probably too early to assess the effects of these policies on savings and investments, but these policies should increase responsible financial behaviours of individual at later stages of life.