Financial Literacy Games: Tools or Toys?

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Ready to play the "Great Piggy Bank Adventure?" How about a round of "Mindblown Life?"

These are just a couple of titles of the increasingly visible electronic games and apps promising to help children and young adults become financially literate. T. Rowe Price, the purveyor of the "Great Piggy Bank Adventure," is planning to introduce an app related to its game in May.

What is less visible is any serious measure of whether these activities do the job—whether they do, in fact, help young people learn to make smart financial choices. And with teenagers and young adults having to contend with the rising cost of college and the growing complexity of financial markets, this is more than a minor issue. Are financial literacy games a useful tool, or just another way for parents to spend money?

"This is the million-dollar question," said Annamaria Lusardi, a professor of economics and accountancy at George Washington University's business school and an expert on financial literacy. "People are spending a lot of money on these applications and programs, and they are not doing evaluations of them. I cannot tell you out of all these programs what works and what doesn't."

The final report of the President's Advisory Council on Financial Capability has also bemoaned the lack of information about financial literacy teaching tools. "The number of financial education resources to choose from is overwhelmingly large, " the council said in its final report to President Barack Obama. "At the same time, quality and efficacy indicators are sorely lacking and there is no clear relationship between the quality of a program and its availability."

Overall, though, there are indications that the games and apps may be having little effect. A major study of financial capability, published in 2009 by the Financial Industry Regulatory Authority found that young adults were twice as likely as those over age 30 to incorrectly answer a simple question about the impact of inflation. And Lusardi told a congressional panel on April 24 that an update of the study, not yet published, "shows no improvement in the level of financial knowledge between 2009 and 2012."

(Take a look at FINRA's financial quiz here.)

Of course, the shortcomings of financial literacy games are not the only reason for financial illiteracy among children and young adults. Numerous surveys, like a recent one by Citigroup's community development arm and Parenting magazine, show that parents do a poor job of talking to their kids about money.

Also, programs in schools seem to vary widely in their effectiveness. (Of course, this may be because many of these so-called programs consist of a single high school course. That approach probably wouldn't work very well on math or science capability either.)

It's also true that some of the financial literacy games do appear to be somewhat beneficial. T. Rowe Price has studied the effect of the "Great Piggy Bank Adventure" on young players, and says two-thirds of the children responding to the survey said they had set goals for their money, and 73 percent of the young respondents said they changed their saving and spending behaviors.

"The sample sizes weren't huge, but we think it's directional and shows we're on the right track," said Mark Robinson, T. Rowe Price's corporate social responsibility manager, who also oversees the company's financial literacy initiatives.

But Lusardi said more often than not, the games may be reaching kids who are more likely to be financially literate in the first place.

"A lot of these applications may preach to the converted. Right now, the financially literate students are disproportionately white males from college-educated families," she said.

T. Rowe Price, for example, found that while about half of the parents making use of the "Great Piggy Bank Adventure" had incomes under $75,000, about 30 percent had incomes of more than $100,000, and over one-third had a graduate degree.

Lusardi said that the best place for financial education is in the schools. "Financial literacy is a scientific topic. I don't know how much science there is behind these applications. Normally we have trained teachers do this stuff, " she said. "I love games. I think they should be part of this. But if it's in the school, it's a lot more systematic. Financial literacy is no different from any other topic. It belongs solidly and squarely in the schools. Then we'll be able to equip this new generation for this changed world."