Community Dividend

Better deals on wheels: The effects of financial education on car buying

A Federal Reserve study explores whether financial education helps young consumers make wise car-buying decisions.

Catherine Bell | Senior Research Assistant, Division of Consumer and Community Affairs, Board of Governors of the Federal Reserve System
Jeanne M. Hogarth | Manager, Consumer Education and Research, Division of Consumer and Community Affairs, Board of Governors of the Federal Reserve System

Published April 1, 2010  | April 2010 issue

Vehicles are the most commonly held nonfinancial asset in the United States. Data from the Board of Governors of the Federal Reserve System's 2007 Survey of Consumer Finances show that 87 percent of U.S. households have a vehicle (broadly classified as a car, truck, SUV, minivan, and so on). Among households headed by individuals under age 35, the rate of vehicle ownership is about 85 percent.

A car is a big-ticket item, and purchasing one is typically the first major financial transaction for a young consumer. With a few exceptions, vehicle prices are subject to negotiation. Furthermore, a substantial amount of vehicle financing takes place through dealerships, which means that many transactions involve a dual decision on the price of the vehicle and the price of the financing. Sometimes it's difficult to unbundle the price of the car from the price of the financing offered. And while the Internet has helped make pricing and financing markets more transparent, there is still plenty of asymmetric information in the car-buying experience. In a situation where markets are complex and young buyers are inexperienced, the case for financial education is fairly clear.

But does it work? Specifically, do young consumers who receive financial education do better in the car-buying experience than other young consumers? According to an evaluation of a financial education program for soldiers in the U.S. Army, the answer appears to be a qualified yes.

Two-day course covers car buying

Over the last several years, the Army Emergency Relief (AER) organization, the U.S. Army post at Fort Bliss in El Paso, Texas, and the Federal Reserve Board have been collaborating to provide financial education for young enlisted soldiers and evaluate the impact of that education on the soldiers' financial management behaviors. The soldiers attended a two-day financial education course while they were enrolled in the Army's advanced individualized training (AIT) for air defenders. AIT was the last step before the soldiers were posted to their first official duty stations.1/

The financial education course was taught by staff from San Diego City College and funded by AER. About one-fifth of the course was devoted to purchasing a vehicle. The discussion covered comparison shopping and sources of information; getting a loan, with added material about credit reports and credit scores; shopping for insurance; and considering the long-term costs of ownership, including gas, maintenance, and repairs.

At the end of the course, soldiers completed a survey of financial behaviors that served as a baseline for the evaluation. The survey covered many aspects of money management, such as credit cards, checking accounts, and retirement saving, in addition to car buying. The average age in the baseline survey group was 21.7 years. A second group of similarly aged soldiers at Fort Bliss who did not participate in the financial education course served as a comparison group.2/ To provide second data points for our study, the soldiers who attended the financial education course later took a follow-up survey. Soldiers in the comparison group completed only one survey, which was conducted at the same point in time as the education group's follow-up survey.

Survey reveals savings

The evaluation results related to car buying, summarized in the table below, indicate that the soldiers who received financial education made better decisions than their peers. As might be expected, a higher proportion of soldiers in the follow-up survey had their own vehicle, but those who went through the financial education program were less likely to lease and more likely to buy than those in the comparison group. (Given the risk of deployment, and given the constraints involved in leasing a car, ownership is a wiser choice than leasing for many young, enlisted members of the military.)

Those in the follow-up survey had smaller loan amounts, higher down payments, and a higher down-payment-to-loan ratio. The smaller loan amount could be the result of the higher down payment, but it could also represent obtaining a better price through improved negotiating skills learned from the course.

Soldiers in our follow-up survey also reported taking out shorter average loans than those in the comparison group—48 months versus 53 months, respectively—and they reported lower monthly payment amounts.3/ Both of these represent savings opportunities for the soldiers who took the financial education course.

In addition, even when we control for many other characteristics of the soldiers besides age, such as their years in the military, pay grade, gender, race, education, marital status, and prior family experiences, we find that those who took the financial education course were more likely to do better in the car-buying experience than those in the comparison group.

Teaching to the moment

Our survey results related to car buying support the idea that financial education can be a powerful tool for influencing consumer behavior. However, the results related to other behaviors suggest that there are limits to what financial education can do. Specifically, financial education seems to work best when the topic is relevant to the learner and when the teachable moment is at hand. We believe education about car buying was particularly relevant and timely for the soldiers at Fort Bliss because it was offered when they were just beginning their military careers. For many of the soldiers, purchasing a means of transportation was, or would soon be, a high priority. While the course "worked" for buying a car, it was not a significant factor in determining soldiers' behaviors with respect to managing their checking accounts, managing their credit cards, comparison shopping for credit or major purchases, or in saving for retirement.

In short, our survey results indicate that a small amount of financial education, delivered to the right group of consumers at the right moment, can have a significant, positive effect on the group's financial management behavior. Conversely, financial education that has little immediate relevance for consumers appears to have little effect. We believe this key finding has broad applicability to the design and delivery of financial education programs, and we encourage educators and policymakers to give it careful consideration.

Catherine Bell and Jeanne M. Hogarth are colleagues in the Division of Consumer and Community Affairs at the Board of Governors of the Federal Reserve System. Bell is a senior research assistant and Hogarth is the manager of the Consumer Education and Research section.

The analysis and conclusions set forth in this article represent the work of the authors and do not indicate concurrence of the Federal Reserve Board, the Federal Reserve Banks, or their staff. Mention or display of a trademark, proprietary product, or firm in the article by the authors does not constitute an endorsement or criticism by the Federal Reserve System and does not imply approval to the exclusion of other suitable products or firms.

Vehicle Ownership and Vehicle Loans

Survey Results Among the Baseline, Follow-Up, and Comparison Groups of Soldiers
(Findings are expressed in percentages, except where noted)


Ownership and Loan Variables

Soldiers Who Received Financial Education

Soldiers Who Did Not Receive Financial Education (Comparison Group)

Baseline Group

Follow-Up Group

Vehicle ownershipabc




    Do not own a vehicle




    Own a vehicle




    Lease a vehicle




Among those with a vehicle, have an outstanding loan or lease (counts both those who own and those who lease)b




    Mean number of vehicle loansc




Mean size of vehicle loand




Mean down payment on vehicle loan




Mean down payment to loan ratiob




Mean length of vehicle loan (months)b




Mean time remaining to pay off vehicle loan (months)




Mean monthly payment amountb




a Significant at 0.05 between baseline and follow-up groups
b Significant at 0.05 between follow-up and comparison groups
c Significant at 0.05 between baseline and comparison groups
d For this and subsequent variables listed in the table, zeros were excluded (i.e., soldiers who do not own a vehicle or do not have a loan were not included in the averaging).

For further reading

Along with coauthor Daniel Gorin, who serves as a senior Community Affairs analyst at the Board of Governors of the Federal Reserve System, researchers Catherine Bell and Jeanne M. Hogarth have published the following papers about their work on financial education in the military.

Does Financial Education Affect Soldiers' Behavior? Working Paper, Networks Financial Institute at Indiana State University, August 2009. Available via the publications search tool at

"Teaching for the Test, and Life is the Final Exam." Presented at the annual conference of the Association for Financial Counseling and Planning Education, November 2009, Scottsdale, Ariz. Published in the 2009 Conference Proceedings, available at


1/ AIT generally takes place immediately after basic training; depending on the course of instruction, it can last 6 to 12 weeks. During the course of this study, most air defenders stayed at Fort Bliss after AIT or were deployed to South Korea or Southwest Asia.

2/ All soldiers in air defender AIT at Fort Bliss were scheduled to complete the financial education course. However, a minority of them was unable to participate due to conflicting duties assigned by the commanding officer. As far as we could tell, the factors determining whether an AIT soldier was able to complete the course were random. The comparison group consisted of soldiers at Fort Bliss who were in the same units after their AIT as the soldiers in our study but who did not receive financial education.

3/ As the table indicates, the baseline group's monthly payment was even lower than the follow-up group's monthly payment. However, like the comparison group, the baseline group had longer-term loans than the follow-up group, which can lead to higher total loan costs.