I come back to this theme because it goes so strongly against what I wish to be true.

Research continues to dribble in that financial education does not help people make better financial decisions.

Lauren Willis in Against Financial Literacy Education puts it this way:

“The gulf between the literacy levels of most Americans and that required to assess the plethora of credit, insurance, and investment products sold today—and new products as they are invented tomorrow—cannot realistically be bridged. Educators would need to impart a sophisticated understanding of finance because rules of thumb are not useful for decisions about complex products in a volatile market. Further, high financial literacy can be necessary for good financial decision making, but is not sufficient; heuristics, biases, and emotional coping mechanisms that interfere with welfare-enhancing personal finance behaviors are unlikely to be eradicated through education, particularly in a dynamic market. To the contrary, the advantage in resources with which to reach consumers that financial services firms enjoy puts firms in a better pos ition to capitalize on decision making biases than educators who seek to train consumers out of them.”

In other words, there is an arms race between financial complexity and financial education with financial education always trailing.  And even when financial education is sufficient our cognitive biases get in the way.  Financial education enshrines a myth about consumer self-reliance that then allows those same consumers to be blamed for their incompetence and greed when everything goes wrong.

Willis observes:

“That [the financial] industry supports financial literacy education is, while indirect, perhaps the strongest evidence that this education is not effective in improving consumer financial decisions”

If this research continues to hold up a radical restructuring of how financial products are distributed is needed.  One solution that comes to mind is the drug model.  Basic vanilla products that are easy to understand could be sold directly to the public (think over the counter drugs)..  However, more complicated products could only be bought after getting a prescription from a financial planner who has a fiduciary duty towards the client.  The educational standards for these planners would need to be raised to the equivalent level of an MD to give them a chance of seeing through the smoke screens financial product manufacturers would inevitably create.

Other Sources: