Immigrants and their children in the US who receive financial education targeted at their specific needs demonstrably improve their financial literacy, but these gains in knowledge do not persist for long.
A new study by CESR’s Silvia Barcellos and co-authors shows immigrants to the United States and their children are part of an unfortunate American tradition: ignorance of financial matters, including retirement planning.
In a field experiment with first- and second-generation Americans, those who received financial education targeted at their specific needs demonstrably gained new knowledge about banks, savings, investments and so on. However, the paper also shows that these gains in understanding, while large, soon fade. Financial education also had little effect on intended financial behavior, both immediately and later.
The study, Financial Education Interventions Targeting Immigrants and Children of Immigrants: Results from a Randomized Control Trial, echoes other recent findings from CESR researchers: Americans of all stripes are closer to financially illiterate than not and most are woefully unprepared for retirement. For example, a panel survey undertaken last year (PDF) through the Understanding America Study showed “knowledge and understanding of Social Security leaves much to be desired, both by respondents (few of whom perceive themselves to be very financially prepared for retirement) and by objective standards.”
In addition, a recent qualitative study with Hispanic participants (PDF) found “low levels of self-reported retirement preparedness, low levels of Social Security literacy, a greater reliance on informal than formal sources of information and a tendency to prioritize other financial investments (such as paying off mortgages and student loans, or investing in commercial property) over retirement savings.” The latter study complements the findings from Barcellos et al., in which many immigrants and their offspring are Hispanic.
As the paper notes, one out of every eight individuals living in the United States today was born abroad. Moreover, 82 percent of American population growth between 2005 and 2050 will be due to immigrants arriving during this period and their US-born descendants.
First-generation Americans surveyed for this study they are more likely to have debts, less likely to be home and vehicle owners and more likely to make preretirement withdrawals from their retirement accounts when compared to natives. Similarly, second-generation Americans have lower levels of financial knowledge, lower levels of financial participation and asset ownership, and are more likely to allocate their retirement savings in bonds relative to stocks than are natives.
Interestingly, the immigrants, their children and the wider US population are near equal in their lack of financial confidence: More than a third of all respondents report not planning for retirement and more than 60 percent are not certain they will be able to meet their long-term financial needs.
To provide financial education to immigrants and their children in the study’s experiment, the researchers adapted the Federal Deposit Insurance Corporation’s (FDIC) Money Smart curriculum (featuring general-purpose financial information about banking services, saving and investing) to include issues such as retirement planning for new immigrants.
According to the paper, one-time exposure was effective in substantially increasing financial knowledge in the short term, but these effects were short lived. Even though large increases in knowledge were documented, a follow-up survey showed most of these effects fade away after six months.
Moreover, analysis shows the financial education program had very limited effects on intended behavior change, measured either immediately or six months after. These intended financial behaviors include starting up a retirement savings plan (e.g., a 401(k) or IRA) or saving/investing an unexpected windfall.
At the end of the day, researchers said the study confirms that financial education can inform immigrants and their children about important financial information with which they are unfamiliar, including that related to their immigrant status. However, Barcellos et al. also suggest further testing to establish whether repeated opportunities for learning can increase financial knowledge retention and lead to behavior changes.