This paper investigates the effectiveness of both videos and narratives in improving people's understanding of five basic concepts in financial planning: (1) compound interest; (2) inflation; (3) risk diversification; (4) tax treatment of retirement savings vehicles; and (5) employer matches of defined contribution savings plans. To that end the authors have administered a quiz about these concepts in the American Life Panel to establish a baseline of what respondents understand about these concepts. Next, in a number of waves, respondents were shown narratives and videos related to the five concepts and the quizzes were administered again. They find significant improvements in understanding of these concepts in comparison with a control group that was not shown any material. They do not find a difference between videos and narratives in terms of effectiveness.
The research described in this report was prepared for the Social Security Administration and conducted by the Financial Literacy Center.
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