Technology Effects on Financial Literacy

Financial literacy is the measure of personal finance best practices and actions. In this project proposal, the study reviews the efficacy of Lampo Group, LLC’s Financial Peace University online compared to the traditional classroom curriculum. The study includes qualitative analysis of focus group surveys along with a larger quantitative survey of American paths to financial health. The study concludes with recommendations to personal finance educators to improve student results and next steps for further research.

Overview of the Study’s Results

The excerpt below is from my research study for the Spring 2020 semester at Georgia Tech. You can find the formal research paper and source data on GitHub here.

The Need for Financial Literacy in 2020

Financial literacy is declining in the United States (Peng, Liu, Lu, Liao, Tang, & Zhu, 2018). Exiting the housing crisis and recession of 2007-2009, student debt is the next major threat to the American dream. 4 in 10 students will go into default or delinquency on their student loans (Cunningham & Kienzl, 2011).

To combat the potential financial destruction of America, the education and financial industries offer financial literacy courses to educate citizens and positively affect financial behaviors. One of the most prominent financial educators in the United States is Dave Ramsey. The financial expert’s company, Lampo Group, LLC, produces financial literature, media, and curriculum, targeting young children, high school students, and adults. Ramsey’s most popular product, Financial Peace University (or FPU) is a nine-lesson program taught over several weeks – either in classrooms or online – to educate adults on how to manage their personal finances effectively and pay off debt. Traditional classes meet at community centers and religious organizations at little or no cost to the student. At the time of writing, there are 111 classes available in Greater Atlanta. The online version of the course compares in price to one credit hour at a community college.

Financial literacy is the measure of personal finance best practices and actions.

Financial Peace University covers each of the major topics required to become financially literate: budgeting, emergency funds, debt management, investing, insurance, retirement planning, real estate & mortgages, and avoiding poor financial decisions. FPU uses mixed media to educate students via videos, worksheets, and interactive discussions. In recent years, FPU includes access to Ramsey’s budgeting tool, Every Dollar, to implement the lessons learned in the course after the first lesson. FPU touts thousands of graduates interviewing on Ramsey’s radio show, explaining their journey to financial literacy and good financial health. However, no public research exists that shows the best way to take Financial Peace University. The aim of this project is to qualitatively and quantitatively analyze if the online version of Financial Peace University improves financial literacy and well-being better than the traditional classroom version or no course at all.

Financial Literacy’s Intersection with Technology

Since the turn of the century, the Internet enables educators to create virtual classrooms to reach otherwise unreachable students. In the case of financial literacy, students with busy work schedules, families, and otherwise limited means to access financial education may use technology to learn and improve their financial well-being.

Slaughter (2006) states digital programs, such as Practical Money Skills for Life, successfully improve financial literacy for African American high school students by as much as 21% based on qualitative analysis. Slaughter (2006) implemented a two-phase method: preliminary interviews to understand financial attitudes and pre/post-testing within a web-based personal finance course quite like Financial Peace University. Unlike Slaughter’s work (2006), this project will survey former and current FPU students to measure their financial well-being before and after the course; this project will utilize quantitative analysis with an expected large sample size rather than a qualitative study to understand the phenomena of financial literacy. Slaughter’s questions (2006), such as demographics and attitudes, will influence questions in this project’s survey.

In Outcomes of On-line Financial Education for Chronically Ill Rural Women (Haynes, Haynes, & Weinert, 2011), the level of intervention in the course is a key focus to determine financial literacy improvements with online education. Haynes et al. (2011) studied three groups: intense intervention with support from other classmates and experts, moderate intervention without support, and a control group. Haynes et al.’s study (2011) featured larger groups than Slaughter’s (183 participants in total with pre- and post-test data). Like FPU, the course was an extended intervention (22 weeks) (Haynes et al., 2011). 60% of the Haynes et al. (2011) study participants were middle-aged or senior adults; a direct foil comparison to Slaughter’s participants (2006). This project’s participants will feature participants between the ages of 20 and 45, covering a different demographic for online financial education.

Way & Wong (2010) investigated if technology improves financial well-being. They found the opportunities to target both general and special groups are possible with technology, but they also found we must apply specific teach strategies to implement the technology effectively. Way & Wong recommended a focus on decision-making, human motivation, and meaningful engagement to improve success. In addition, they concluded a direct approach to “learn with” instead of “learning from” technology (Way & Wong, 2010, p. 64). The research duo found social media and forums as a key part in learning through shared experiences. This is also a feature of FPU.

The Federal Reserve Bank (FRB) of St. Louis measured the effectiveness of a single course, Soar to Savings (Wolla, 2017). Like Wolla’s study (2017), this study will determine the efficacy of a specific course. The FRB concluded online courses have similar, positive effects to traditional courses. The government does not give Community Reinvestment Act (CRA) credits to banks for teaching courses online; the act requires an in-person class for banks to earn CRA credits. This affects current pedagogy used by financial institutions.

Other researchers found behavior and psychology plays a significant role in financial wellness (Fernandes, Lynch, & Netemeyer, 2014). Confidence has a positive correlation with financial independence (Farrell, Fry, & Risse, 2016). Media on the subject also influences behavior and moods on personal finance, targeting middle-to-upper income families and shifting Americans towards neoliberalism (Davidson, 2012). Financial Peace University and Dave Ramsey/Lampo Group, LLC materials follow this pattern, encouraging students to win financially and become self-reliant.

Free Online Education Models Show the Most Financial Literacy Improvement

The responses from 131 participants do not prove the study’s hypothesis that the online version of FPU results in higher financial literacy than the traditional course setting. However, the results call for further research into the topic.

The survey responses show a phenomenon of free educational resources resulting in statistically significant improvement in financial literacy.

The survey responses show a phenomenon of free educational resources resulting in statistically significant improvement in financial literacy. The videos and podcasts teach the lessons in Financial Peace University, and the authors repeat said lessons five times per week through Dave Ramsey’s radio show. With the saturation of content by Dave Ramsey’s team, Americans have a practical way to learn and improve their financial health if they have internet access. Figures 1 & 2 show the popularity of learning methods and the corresponding financial literacy assessment scores of students.

The study also found social inclusion through social media groups mimics the interaction in FPU classrooms. The responses show higher financial literacy with those who took part in social media groups on a routine basis.

learning methods of survey participants
Figure 1 – Participants’ top three learning methods were financial lessons from family members, online videos & podcasts by Lampo Group, LLC, and books by Dave Ramsey and associated personalities (e.g., Rachel Cruze and Chris Hogan).
financial literacy assessment results
Figure 2 – This radar chart shows online, often free financial education resources result in higher financial literacy rates than traditional methods.

In context of the American population, it is difficult to generalize the results of the study due to participation bias. For students that have already chosen Dave Ramsey’s materials as one of their resources for financial education, the study can help them choose the best method to learn.

The researcher conducted the study during the 2020 COVID-19 (or coronavirus) pandemic. The psychological effects of an international quarantine are unknown and may affect the results.

The study focused on one curriculum, Financial Peace University. The researcher narrowed the scope of the study to complete it within the prescribed period (the Spring 2020 Georgia Tech semester). Research exists for other curricula, and results from those studies show similar successes for student financial health. The researcher chose FPU due to its popularity in the United States and the researcher’s familiarity with the material to create a relevant survey about the material.

A strength of the materials covered in the study are their accessibility. In the primary survey, responses show free and paid materials are of equal quality. There is potential the free resources are more effective because they have a lower barrier to entry, and curriculum authors post this content at a higher frequency. Students can learn at their own pace and tailor the curriculum to meet their needs. The daily engagement between Lampo Group, LLC and their students increases the odds of financial success by keeping financial education in the Facebook news feeds of their students. By repeating the same concepts in multiple scenarios and mediums, students have options to learn in the way that works best for them (lectures, reading, audio during commutes). The same concepts apply to other financial education providers.

Free and paid materials are of equal quality. Most study group participants ranked course software as a key part of their experience.

The social interaction within the Financial Peace University further enhances the learning experiences of students by allowing them to share their successes and struggles. The community functions in similar ways to support groups, such as Alcoholics Anonymous and military spouse groups.

Most study group participants ranked the course software as a key part of their experience. This shows potential validation of other studies’ findings. Unfavorable rankings of related online tools may show participants use more traditional tools to manage finances. This is an opportunity for financial technology companies, such as Intuit and PayPal, to improve budget tool offerings to make them more accessible. Lampo Group, LLC also offers a budgeting tool that is only relatively new the market and in active development. Results from this study can help inform the development lifecycle for such tools.

The sample gathered during the focus group is at the extreme ends of the American lifestyle: wealthy or extreme debt. All focus group participants were members of the same demographic group. The focus group does not stand for an “average” American. The primary survey addressed potential biases showed in the focus group with a different recruiting method (e.g., random sampling). However, demographics in the primary survey indicate Lampo Group, LLC may be more popular among Caucasians. This is an opportunity for the curriculum authors to review their marketing strategy and determine if they are inadvertently overlooking minorities. The researcher recommends placing more emphasis on minority personalities, such as Chris Hogan, and integrating their experiences into the FPU curriculum.

One weakness the data suggests is learning personal finances from family members, although popular, may be the least productive way to master personal finance. This is likely to the concept of generational poverty and students learning bad money habits from relatives. This suggests companies dedicated to financial literacy offer value to the market.

Learning personal finances from family members may be the least productive way to master personal finance.

One threat facing FPU’s business model is product cannibalization. The data shows competing products (YouTube and podcasts) may reduce market demand for a paid curriculum, and for-profit educators should watch this threat as massive open online courses (MOOCs) grow in popularity. The marketing strategy by the authors of FPU is introducing customers to free materials and selling supplemental materials (books and courses). However, survey responses show supplemental materials do not result in higher financial literacy than if a student learned from only free materials. The researcher assumes brand partnerships, book sales, and tuition subsidize the free materials. The subsidization could create an unsustainable business model if free materials continue to grow in popularity but do not result in sales conversions.

Another threat specific to technology-integrated financial curricula is access to technology. Many rural and impoverished communities in America lack access to computers and the internet. Many counties in the researcher’s home state of Alabama have low rates of internet access (Archibald, 2019). It is in online financial education developers’ best interests to promote rural broadband and free or low-cost internet for financially challenged communities.

Following this study, researchers may continue qualitative studies targeting other financial education programs to determine if the results from this study transpose to other pedagogy.

A follow-up survey with a larger sample size will determine if the financial literacy scores of online FPU graduates are statistically significant compared to traditional graduates. The purpose of such a study would be to answer the question proposed in this study’s problem statement.

One question not answered in this survey is if financial literacy rates differ based on what step participants are on in the FPU Debt Snowball program. Research into this could lead to better motivation techniques for educators to coach students.

Curriculum developers should look at the program and media strategy Lampo Group, LLC employs to determine if it is repeatable for other programs. There is an opportunity for smaller financial education proponents to curate the best of the free materials to create custom lesson plans targeting specific audiences. Educators and psychologists may study the communities that have grown around programs like these to determine the positive and negative effects of student participation.


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References

References available on GitHub.

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