The growth in products available to the consumer financial market has provided more choice and formal control over household financial decisions than ever before. This has placed greater demands on consumers to be more financial literate in order to improve decision making. To this end, financial literacy education (FLE) is a key objective of many governments. Understanding the barriers to financial literacy is a global issue that is not necessarily affected by cultural, social or legal differences. FLE is assumed to improve consumer behaviour in relation to financial products and services. However, there is mixed evidence that clearly demonstrates a direct causal link between financial education, financial literacy and investment decision behaviour.

The aim of this special issue of the Journal of Financial Services Marketing is to address the effectiveness of FLE programmes, to investigate the reliability of the assumed link between participation in such programmes and financial behaviours. This issue brings together research from a diverse array of fields such as law, finance, criminology and psychology to examine consumer behaviour, as well as the regulation of consumer products in the financial market. An interdisciplinary understanding of financial literacy and consumer protection is timely as the major developed countries enter a new paradigm of financial reform in the post-financial crisis era.

The first paper in this special issue is by Taejun (David) Lee and TaiWoong Yun and Kwang Seok Han titled The Role of Creative Strategy, Ad Disclosure, and Regulatory Focus in Investors’ Decision Making: An Experimental Investigation. This paper examines the effects of creative strategy and disclosure in financial services advertising on retail investors’ attitudes and behavioural intentions. It also explores individual differences in regulatory focus. The study is motivated by the limited research carried out that examines the impact of advertising on retail investors. In particular, given uncertainties in the US social security system as well as negative savings rates and the general effects of failing to prepare for retirement, the study examines the effectiveness of financial services advertising on retail investors’ information processing and decision making. From their analysis, the authors demonstrated that there are two distinct groups of retail investors that participate in financial decision making. They distinguish between promotion focus and prevention focus investors. The authors used a between-subject experiment to indicate the level of an investors’ regulatory focus which moderates the effects of financial services advertising related to creative strategy and disclosure. Their results showed that investors with a chronic promotion focus evaluated transformational advertisements and advertisements without disclosures more positively, whereas investors with a chronic prevention focus preferred informational advertisements and advertisements with disclosures. That is, prevention-focused investors had a more favourable attitude towards, and showed greater purchase intentions of, a financial product when exposed to informational advertisements than advertisements with disclosures. On the flip side, promotion-focused investors had a more favourable attitude towards, and showed greater purchase intentions of, a financial product when exposed to transformational ads and ads without disclosures. This study sheds new light on the importance of a match between advertising techniques (for example, creative strategy and advertising information provision) and a self-regulatory focus to increase advertising persuasiveness. The regulatory focus serves as a filter to process advertising claims and information selectively to construct their psychological responses among retail investors. It may be necessary to create two types of financial services advertisements for target customers: transformational advertisements without disclosures (targeted at promotion-focused investors) and information advertisements with disclosures (targeted at promotion-focused investors). By creating two types of advertisements to appeal to the two investor segments, financial marketers may be able to choose advertising media vehicles that may be aligned with the dominant regulatory focus of target audiences.

The second paper by Michael Finke, Laura Ricaldi and Sandra Huston titled Financial Literacy and Shrouded Credit Card Rewards seeks to explain naïve consumer choice among credit card consumers through financial literacy deficiencies. Credit card companies charge an interchange fee for each transaction, and almost half of this fee is returned to consumers in the form of a reward programme. For credit card users who do not use such cards as a source of financing (the so-called ‘convenience users’) rewards are generally a means to negotiate the implicit price of the interchange fee. An economically rational consumer should therefore choose a reward card if their time cost is less than the value of the attached rebates. The study examines whether credit card companies segment customers by marketing non-salient credit card characteristics to appeal to naïve consumers while offering lower-price cards (net the rebate) to compete for more sophisticated consumers. The authors measure consumer sophistication using a financial literacy questionnaire from a large national data set (Consumer Finances Monthly Survey, a monthly survey conducted by the Consumer Finance Research Group at the Centre for Human Resource Research at the Ohio State University). Controlling for household characteristics such as education, income and wealth in a multivariate analysis, the authors found that respondents in the highest financial literacy quintile were twice as likely to own a rewards card. Respondents in the lowest financial literacy quintile were 50 per cent less likely to use a reward credit card than the most financially literate respondents. These results provide striking evidence that producers of financial products are successfully able to exploit deficiencies in financial literacy to sell higher-priced consumer credit products. The relation between literacy and reward cards suggests that credit card rebates resemble other markets where hidden product attributes create a welfare transfer from naïve to sophisticated consumers.

The third paper Fraud and Its Prey: Conceptualising Social Engineering Tactics and Its Impact on Financial Literacy Outcomes by Jacqueline Drew and Cassandra Cross suggests that financial literacy may not be as effective as previously thought in protecting against fraud victimisation. The authors suggest that financial literacy may not sufficiently inoculate investors from persuasion or social engineering tactics which are increasingly used by offenders to secure investment in fraudulent schemes. Using boiler room fraud as a case study, the authors use the PREY (Profiled, Relational, Exploitable, and Yielding) model to capture the psychological tactics used by fraud perpetrators to influence the thoughts and decision-making processes of individuals. Boiler room fraud is a term used to describe investment fraud that involves the selling of fraudulent investment products at inflated prices. The PREY model uses elements of social engineering to demonstrate how such tactics could be re-engineered to increase the effectiveness of fraud prevention based on financial literacy constructs. The results of this analysis suggest that better fraud prevention outcomes can only be achieved if detection programmes explicitly include education on social engineering and persuasion techniques.

The fourth paper titled Are Target Date Funds the Easy Bake Option? by Anup Basu, Brett Doran and Michael Drew provides a timely insight into the use of target date funds for retirement portfolio investments. Target date funds are designed to provide a simple, automated approach to retirement savings for defined contribution plans, and since the legislation of the Pension Protection Act (2006) in the United States there has been a marked increase in the popularity of such funds for US investors. Indeed they have become the default option for many plans. One element contributing to their popularity is the ‘set-and-forget’ nature implicit in the investment style. Target date funds shift an individual’s asset allocation from growth to defensive assets following a pre-set ‘glidepath’ that guides the portfolio investment decision for retirement income security. Using a plan, member’s age and expected retirement date, the product implements an age-deterministic asset allocation strategy that aims to reduce the potential of having an adverse outcome in the final few years of the investor’s working life. However, recent research findings have challenged the ‘easy bake’ or set-and-forget nature of target date funds. This paper explores some of the critical design features of target date funds against a simple balanced (or target risk) fund design. The authors use both time-weighted and dollar-weighted returns to demonstrate that there is more to achieving successful retirement outcomes than the investor simply selecting a proposed year of retirement, which is the primary decision variable in target date funds. The authors also show that there are trade-offs, particularly related to forgoing significant upside potential and recommend that evolution in fund design is necessary to achieve improved outcomes for investors. This hints at the need to employ more dynamic strategies informed on factors beyond a targeted retirement date.

The fifth paper by Mark Brimble and Levon Blue titled Tailored Financial Literacy Education: An Indigenous Perspective urges caution when viewing education as the sole solution to improving economic progress, as there is little evidence to support a causal link between FLE and financial behaviours and decision making. The authors suggest that while governments generally agree that FLE is critical and that recent economic times have led to a ‘teachable moment’ for financial education, others conclude that FLE is not a single, value-neutral curriculum, and thus current approaches must recognise gender and cultural differences. This paper examines the interesting case of the usefulness of mainstream FLE programmes adapted to suit Indigenous communities. Mainstream FLE programmes that apply the same delivery model, content and logistics to Indigenous participants may not be the most appropriate technique. For instance, the impact of intangibles, such as a lack of self-confidence, shame and embarrassment around having low-income levels, are significant contributing factors that influence financial behaviours. The authors examined the outcomes of four FLE programmes run in Indigenous communities to explore the need for diverse approaches to be applied to FLE in this context. They found that contextualised FLE based on an experiential group-learning model provides greater benefits to the participants than mainstream learning techniques. They provide a range of practical issues that arise in indigenous FLE to recommend appropriate FLE programmes based on these principles. This research highlights opportunities for further research in remote, non-remote and urban indigenous communities and the long-term social and economic value of FLE programmes.

The sixth paper by Jacqueline Drew titled Cold, Warm, Warmer, Hot! Locating Financial Literacy Hot Spots looks at the resource allocation decision. This involves financial information and advice that is relevant, understandable and engaging as well as forming stakeholder partnerships between government, schools, financial institutions, unions, businesses, charities and community groups for setting strategic agendas and operationalising financial literacy through education and training programmes. Drawing on criminological theory, the paper applies a similar methodological approach that is used in identifying ‘hot spots’ of activity in policing. The author uses the hot-spot identification approach to formulate a conceptual framework in the financial literacy context, to guide resource allocation and stakeholder coordination decisions. Given competing priorities, this approach is applied to demonstrate its application to identify financial literacy issues in areas of greatest vulnerability. The author then argues that prioritisation can be determined by assessing hot spots of vulnerability, especially for detecting financial fraud and its link to financial literacy.

The seventh paper by Andrew Worthington titled Financial Literacy and Financial Literacy Programs in Australia considers the definition and assessment of financial literacy and the design and structure of financial literacy programmes. The paper assumes that financial services markets require consumers to be more financially literate if they are to manage their finances effectively. This paper considers two important aspects of financial literacy programmes. First, it reviews the existing evidence of levels of financial literacy in Australia, along with the determinants and impacts on consumers and the marketing of financial services. Second, it discusses the range of financial literacy programmes in Australia aimed to increase the level of financial literacy across the population as a whole, as well as in specific groups set in place by government, industry, community and workplace initiatives. The main contribution of the paper is then a critique of the process of measuring, assessing and understanding financial literacy as it stands, and the purpose, design and evaluation of the financial literacy programmes currently in place. The author suggests that there is much work required of the many and diverse financial literacy stakeholders in both areas. He argues that there is a need for ongoing research, especially in terms of attempting to agree upon a suitable framework and method for the assessment of financial literacy programme design and execution.

The eighth and final paper titled Assessment of Behavioural Outcomes of Financial Education Workshops on Financial Behaviour of Participants: An Experimental Study by Harsha Jariwala and Mahendra Sharma evaluated the behavioural outcome of financial education workshops on financial behaviour of certain participants in the state of Gujarat, India. The authors used an initial and follow-up survey design to test for programme effectiveness. In the initial survey, participants were asked to answer a questionnaire before they attended a series of financial education workshops. The workshops were conducted for 300 ‘homemakers’ over a 2-month period in late 2012 in the state of Gujarat. The workshop series was designed to assist homemakers through financial education that may help improve their financial behaviours by identifying appropriate financial opportunities and consequences. The aim was to improve long-term financial behaviours. A follow-up survey was conducted and the data collected 3 months after the completion of the workshops. The authors examined the effect of the workshops on the financial behaviours of participants across 22 variables of financial behaviour including cash, credit, savings and investment activities. The authors found that there was a significant positive effect of financial education workshops on the financial behaviours of participants. These results will help financial education providers in the future design and implement such programmes more effectively in women from both urban and rural areas in India.