Thaler says that credit card companies, for example, could apply his and Sunstein's approach by asking consumers whether they want to be able to exceed their credit limit (for a penalty) or if they would prefer the charges be denied. "Then people would be aware of what they were getting into," he says.
In the meantime, pending any structural changes, there is some evidence that certain types of financial education work. Programs that are interactive and repetitive, and focus on big-picture concepts, such as goal-setting, get the best results. The lessons from an interactive stock market game, where students buy and sell stocks with $100,000 of virtual cash, appear to stay with students, for example.
Elizabeth Coit, executive director of Networks Financial Institute at Indiana State University, says that teaching the basic ideas of goal-setting and delaying gratification at a young age and then constantly reinforcing those messages can pay off over time. "If you wait to introduce financial management and responsibility until the teenage years or beyond, then you're fighting what is now already entrenched, impulsive behavior," she says.
Financial educator Tischelle George says many kids would benefit from just learning the basics. When George went to college, she quickly ran up credit card debt after signing up for a card in exchange for a free T-shirt. No one had explained to her that she should pay off the balance each month to avoid interest and fees or that taking out a cash advance was expensive. "I was just doing all the wrong things," she says. "I wished someone had taught me about this."
Her own experience led her to develop a financial literacy program, Mind Your Money, in which she teaches preteens and teenagers at Brooklyn, N.Y., public libraries. The basic concepts she covers include how to choose a bank with low or no fees, how to write a check, and how credit and debit cards differ.
Teens. Research shows that young adults who are financially literate tend to be the children of college graduates. That suggests that parents play an important role in teaching their kids about money, Lusardi says. The Schwab survey also found that many parents shy away from discussing personal finance with their teens, often because they falsely believe the teens aren't interested in learning about it. In fact, 60 percent of teenage respondents cited learning about money management as a top priority.
Programs aimed at adults have also shown signs of success: America Saves, a national savings campaign, found that 3 out of 4 participants in a Cleveland-based program put a savings plan into effect and made progress toward their goal after taking classes, meeting with counselors, and using program materials. After signing up for a local dc Saves program last year, Tarik Cranston, 29, a Washington, D.C., middle school teacher, went from saving $20 to $30 a month to socking away $300 a month. The class taught him to track where his money was going—and that showed him how little expenses, like his cigarette habit, added up quickly. Now, he cooks at home more, brings his lunch to work, drives less, and no longer smokes.
As for Brooks, of Buffalo, she is now getting assistance from a member agency of the National Foundation for Credit Counseling. It has negotiated her interest rates with the card companies on her behalf and helped her develop a plan to pay off outstanding balances, now down to $11,000. Says Brooks, "It took me getting into debt to figure out what it was all about."