The Economics of U.S. Financial Literacy Programs

Hello all! I hope all is going great. I’m back again with another interesting strategy employed from around the world. This time at home! I hope you all enjoy this one as I talk about how the United States is helping make the population more financially literate.

In 2024, the U.S. Treasury Department launched financial literacy programs that targeted enhancing the skills of young adults for making better financial decisions. These programs broke away from the traditional and often dull financial education plans and used the principles of behavioral economics to significantly improve the appearance, retention, and real-world application of newfound financial intelligence. Their first success was in getting more young adults, especially those from low-income backgrounds, to participate. Participant numbers were up 40% from the last set of comparable experiments. Young adults are now learning to budget and using more tools to help them maintain a cash flow that actually works for them, not just on paper.

The new programs are accessible to a broad segment of the population. The department knows that two main barriers keep people between the ages of 18 and 35 in the dark about financial matters: a lack of interest and the belief that financial planning is too complex and boring. So, to make financial education interactive and appealing, and to create a society where more people are engaged in financial planning, the department has created a virtual world with plenty of immediate feedback for its inhabitants. Using “gaming” techniques the department is hoping to establish something that looks like a cornerstone: a learning tool that is also a method for building a good and interesting financial life.

The financial literacy program found success by applying several principles borrowed from behavioral economics. Most notably, the program gave its participants an interactive, engaging experience that made them want to come back for more. It did this in part by incorporating gamification—adding game-like features to a non-game context. Research in the past decade has shown that gamification works because humans seem wired to appreciate things like competition, rewards, and incentives. The program made use of all three, and when we provide you with a basic rundown of why they work—given the current understanding of human psychology—we’ll follow up with several real-world examples from the program (and some research on why it’s smart to use games in tough-to-teach situations).

As someone who has been researching behavioral economics and their applications, I find it so interesting that something as simple as making someone engaged or feel like they are apart of something is enough to incentivize people to make some radical decisions they otherwise might not make. Obviously, the repprecussions of using these strategies in a negative context are real, and for that reason need to be regulated heavily to ensure positive usage.

Furthermore, the Treasury Department is considering expansion of these programs for the neglected demographic of high school students and for pre-retirees—people in the last decade of their working lives. Applying the insights of our work to other efforts in financial education could significantly enhance what they did to better our financial decisions.

This is not just important for the tragic few who have to be “noted in the office,” but for the vast majority of us who might have made a different, better, choice had they known how. Financial literacy is not, therefore, just a nice idea but a serious and to-be-pursued program for individual and societal economic stability, both inside and outside U.S. borders.

1. Bureau of the Fiscal Service. (2024). Treasury launches innovative financial literacy programs for young adults: Leveraging behavioral economics for better financial decisions. U.S. Department of the Treasury. Retrieved from https://www.fiscal.treasury.gov
2. Kahneman, D., & Tversky, A. (1979). Prospect theory: An analysis of decision under risk. Econometrica, 47(2), 263–291.
3. OECD. (2024). The impact of behavioral economics on financial literacy and education. Retrieved from https://www.oecd.org
4. Thaler, R. H., & Sunstein, C. R. (2008). Nudge: Improving decisions about health, wealth, and happiness. Penguin Books.
5. Consumer Financial Protection Bureau. (2024). Encouraging financial responsibility through behavioral economics: Insights from the U.S. Treasury’s financial literacy initiatives. Retrieved from https://www.consumerfinance.gov