Developing financial competence about mortgage loans by informal learning using banks\u2019 online calculators

Abstract

Background and aimFinancial literacy (or financial competence) has become an internationally relevant and highly regarded topic. Since people often lack sufficient financial competence, in many countries efforts have been made to foster formal financial education. Less attention, however, has been paid to whether informal learning using information available on the Internet can also support the development of financial competence. However, this seems to be an important question because the Internet has expanded the opportunities for informal learning. In addition, people need to acquire financial competence on their own because not every financial topic relevant in one’s lifetime is covered in formal education syllabi. Against this background, in this study we tested whether people are able to develop financial competence by learning informally using information available on the Internet. We focused on mortgage loans, as they are comparatively complex financial products. Mortgage loans have the potential to significantly influence an individual’s financial situation. In addition, society might carry the burdens of risky and uninformed decisions about mortgage loans—as the financial and real estate crisis has shown.Method45 students of economics and business studies in their final undergraduate year participated. They were randomly assigned to an experimental or a control group. The experimental group explored information about mortgage loans using the loan calculator of a German bank. The control group did not explore webpages. Before the intervention, students from both groups completed knowledge tests and self-assessed their financial knowledge and behaviour. After the intervention, students had to work on a case and to decide whether a small family should take out a mortgage loan for financing a house. The decision had to be justified. In addition, students were administered an immediate and delayed knowledge test.Results and conclusionsStudents of both groups did not differ in knowledge acquisition, decision making about taking a mortgage loan and argumentation quality. However, prior knowledge can be referred to in order to explain the results. Therefore, informal learning using the Internet did not seem to be effective if people did not have sufficient prior knowledge. This result underlines, on the one hand, the necessity of financial education—be it prior to informal learning or in the course of informal learning. On the other hand, the results can be interpreted as a hint to consider how to improve informal learning activities, e.g. by supporting self-regulation or by improving information material.