Analyzing the Relationship Between Account Ownership and Financial Education

Account ownership and financial knowledge are understood to be critical components of financial stability and wealth accumulation. Presumably, combining financial education and accounts reinforces the positive effects of each on the other and enhances the recipient’s financial well being. To date, however, no testing of this hypothesis has been undertaken. This report sets out to do that. It presents a review of programs across the country that combine account ownership with financial education to analyze their relationship and the impact that each component has on the other to inform financial service and education policies for lower-income individuals and families. Based on the findings of the research that was conducted, it appears that financial education and accounts have an iterative relationship, whereby each leads to consumers seeking more of the other. Combining financial education and accounts seems to have a number of positive effects for some consumers, including:

• Active use of accounts,
• Stable maintenance of balances in accounts,
• Progression from one type of account to another,
• Enrollment in financial education,
• Demonstrated acquisition of knowledge, and
• Changed behaviors.

However, it is difficult to delineate what exactly about the relationship generates those outcomes, due to lack of data, the potential for selection bias, and lack of comparison groups. Anecdotal evidence suggests there are multiple factors linking education and accounts that have positive impacts. These factors involve the goal- and action-oriented aspects of combining education and accounts, whereby consumers are provided with a vision, or financial goal, and provided a practical way to apply the knowledge and skills gained from financial education to reach that goal. The research in this report suggests that using a holistic approach of combining the use of account ownership with financial education is beneficial, especially for low-income consumers. As opportunities arise, policymakers should support the expansion of these programs as well as related research and data collection to test the most effective combinations of delivery strategies that help consumers achieve greater financial stability.

The complete report is available below, in PDF format.