Applications of Financial Literacy Programs in Conjunction with Socioeconomic Statuses in Education
By Eshaam Bhattad, Global High School Fellow (Adlai E. Stevenson High School ‘25)
Introduction:
In recent years, amidst rapid increases in wealth diversification within countries across the globe, education systems have grown more adherent to teaching students personal finance, fiscal literacy, and overall improving financial outcomes to promote economic mobility writ large. Moreover, with the increased community-based programs centered in neighborhoods of the low-income and marginalized, there has been growing interest in promoting these financial literacy programs to improve financial outcomes and promote economic mobility in these communities. Precisely defined, financial literacy programs aim to equip individuals with the knowledge, skills, and confidence needed to make informed financial decisions, manage their finances effectively, and access financial products and services. However, research has shown that financial literacy programs, often clouded with biases and ulterior motivations, are not equally distributed across all segments of the population, and there are significant disparities in financial literacy levels across race, ethnicity, and socioeconomic statuses, as well as geographical inequities, which impair some groups over others. These disparities have implications for financial outcomes, as individuals who lack financial literacy are more likely to make poor financial decisions, incur debt, and experience financial hardship, leading to worse quality of life for those unable to receive or learn from the programs.
This essay explores the intersection of financial literacy programs with race, ethnicity, and socioeconomic status. It examines how community-based organizations, peer networks, and systemic factors can promote financial literacy and address financial inequality in low-income communities. Specifically, this essay will examine the effectiveness of financial literacy programs in improving financial outcomes, explore the unique needs of individuals in low-income communities, and examine the role of community-based organizations and peer networks in promoting financial literacy. Additionally, this essay will explore how systemic factors such as discriminatory lending practices and limited access to financial products and services perpetuate financial inequality in low-income communities and examine policy and advocacy efforts to address these issues. Ultimately, this essay seeks to provide a comprehensive understanding of the role of financial literacy programs in addressing financial inequality and promoting economic mobility in low-income communities.
Literature Review:
Previous papers have examined the connection between financial literacy programs and their effectiveness in servicing low-income populations and ethnic and racially marginalized communities. A study by Annamaria Lusardi at the Stanford Center of Longevity in 2014 specifically sought out the effectiveness of financial literacy programs writ large, encompassing programs currently instituted as part of their evaluations. Lusardi(2014) analyzed the trends from participants within the USA, The Netherlands, Germany, Italy, Russia, Sweden, New Zealand, Japan, Australia, France, Switzerland, Romania, and Canada, testing competency with four questions on numeracy, interest rates, inflation, and risk diversification. Only 30% of respondents in the United States could get all four questions right. Lusardi(2014) also found that for countries across the board, millennial respondents had an accuracy rating of 28% on the survey, despite being employed at the time of taking the survey.
Further, women were also found not to understand the concepts on the survey twice as much as men, with 47% needing to understand risk diversification. With those results outlined, Lusardi(2014) concluded that financial literacy programs were ineffective within the period and disproportionately hurt women, minorities, and low-income earners more than the other ethnic, racial, or socioeconomically based groups. By providing the foundation that ineffective models and improper discrimination exist, it dually provides the foundation for the further exploration of that in modern times, which this paper aims to do.
With the emergence of COVID-19, the British Journal of Educational Technology in 2020 measured the effectiveness of online programs on students’ financial literacy. BJET(2020) found that teacher engagement in the webinar series generated student learning outcomes 0.39 standard deviations higher than those of students whose teachers did not receive this intervention. This confirmed the initiative’s effectiveness in bolstering learning outcomes for up to six weeks after the initial intervention. In addition, BJET(2020) found that online intervention from reputable institutions improved literacy rates within the areas, providing the groundwork for effectiveness from educational institutions, but noted that the sample data drew results from affluent neighborhoods and families, which skewed the results to a more positive deviation. However, it lays the groundwork for examination on both fronts, reevaluating if post-pandemic programs still have the same effectiveness and if the results from high-income neighborhoods also translate to lower-income ones.
Finally, a research paper in 2016 from the World Bank Policy group written by Lisa Xu finds that in financial literacy programs across the world, a certain degree of political, institutional, racial, ethnic, or cultural bias exists in most programs, which skews programs to not be standardized or purely beneficial across the board. Analyzed from the perspective of a citizen taking the program, Xu(2016) finds that the overwhelming majority of programs catered to the youth, marginalized, impoverished, or oppressed often end up being of low quality, with the presenters and organizers being relatively uneducated and unable to answer complex questions or deal with the attendees at the programs. In addition, Xu(2016) found, most often, for people of color, or low-income adults, programs could never grasp the information. As a result, they often made them more confused, anxious, and nervous about managing their finances. This study provides the framework for more extensive research, specifically focused within the United States, toward understanding how impoverished and marginalized groups are and the quality of the programs.
Methodology:
The study will utilize three components to assess the credibility and efficacy of these programs to the most accurate degree. 1) will survey research to collect data on the financial literacy levels, financial behaviors, and attitudes toward financial education and financial institutions among individuals in low-income communities. The survey was administered to a sample of individuals within low-income communities identified through connections with local university and secondary school professors and participants who serve in positions of authority such as trustees, council members, parental guardians, and college and secondary level students from the area. The survey included roughly 2400 participants from the South of Chicago, known for its inadequate educational systems and rampant poverty. The questions were a range of topics, including exposure to financial literacy programs, access to financial products and services, financial decision-making, and attitudes towards financial education systems outputted by local institutions, governments, third parties, and education systems, all of which were collected via Google Forms to those with access to technology, or pamphlets in the neighborhoods with poor connectivity. A few communities were unable to be examined such as Hyde Park and Woodlawn, given inadequate cooperation with the local officials within the area, as well as high-risk conditions which posed a threat to any researchers or participants.
The study also utilized 2) qualitative research methods to collect in-depth data on the specific experiences, perspectives, and needs of individuals in low-income communities related to financial literacy and financial outcomes to develop a more comprehensive overview of the problems with the programs. With over 300 participants within this data collection stage, pamphlets, Google Forms, and interviews were the prime modes of data collection, with all the participants being subjugated to a standardized model of questions no matter the method. The qualitative research stage included semi-structured interviews with a subset of survey participants from the survey research and interviews with community-based organizations, local institutions, and peer networks involved in financial education programs and their curation. This qualitative analysis posed the groundwork for posing more specific and targeted reform suggestions based on the experiences of the people surveyed. For participants unable to make it to an in-person interview, phone calls and online communication were a limitation that was often run into throughout this stage, but still rendered near similar results to the ideal form of data collection.
Finally, study 3) analyzed the data collected through the survey and qualitative research to identify patterns, themes, and relationships related to financial literacy, financial behaviors, and attitudes toward financial education and institutions in low-income communities. Analyzing was done by inputting all the responses and data into the database. An algorithm is designed to group similar information into packages and then utilize those packages for final results and suggestions. The analysis also explored the intersection of race, ethnicity, and socioeconomic status in financial outcomes as examined through the data collected in the survey and qualitative research. It used those in reviewing the effectiveness of community-based organizations, peer networks, and systemic factors in promoting financial literacy and addressing financial inequality. With hundreds of responses, there were errors in classifying them appropriately. However, individuals were also tasked with reviewing the dataset and algorithm’s designations to ensure everything aligned with its appropriate package.
Results:
Data from the 2,457 respondents were collected as part of the results, with 45 of the responses being dropped due to duplicate individual reactions. Each entry was reviewed through an algorithm, an AI, and an impartial individual to obtain accurate and fair data. 91.5% reported being in a financial literacy program conducted on behalf of a community-based organization, peer network, financial institution, or educational institution. The other 8.5% reported being to an “other” form of the program that could not be classified into different categories. When asked to measure programs in their areas on a scale of 100, the average concentration score (ACS) across all responses was 55.39. Using self-analyzed classification systems(SACS), anything in the margin above the average score was considered “good,” and anything with a designation of 10+ points was “great.” If the margin ever exceeded that, it was considered a “high” level system that was looked upon for suggestions for those around it. South Chicago (ACS = 43.25, SACS = poor), Hegewisch (ACS = 48.92, SACS = below average), Riverdale(ACS = 47.80, SACS = below average), Roseland (ACS = 54.92, SACS = average), Chatham(ACS = 67.72, SACS = great) Grand Boulevard (ACS = 55.79, SACS = average), all were areas with high impoverished populations and relatively low proximity to collegiate level educational institutions. On the other hand, places like Armour Square(ACS = 62.25, SACS = good, Douglas(ACS = 53.25, SACS = average), Englewood Fuller Park(ACS = 71.25, SACS = high), Oakland(ACS = 57.82, SACS = good), Washington Park(ACS = 62.25, SACS = good), which was closer to proximity for educational institutions observed overall better results, consistent with BJET(2020). However, despite the higher rating of programs, average ratings for neighborhoods stayed relatively the same, with the average score on the ten-question multiple choice quiz on numeracy, inflation, and risk diversification being 48.5%. Qualitatively, many participants reported feeling “anxious,” “confused,” and often “stressed out” by the literacy programs because they would pitch investment strategies that catered to those with “pre-built wealth.” 16% of interviewed respondents also mentioned how programs served as a “safe place” for them to avoid violence and crime on the streets. 64.8% of participants responded feel “looked down upon” when attending many meetings, “as if the instructors thought lowly of them.” 39.1% of participants also felt that their race, ethnic, cultural, and gender identities were judged during the programs. They were often used to contribute to the “unsafe environment” and “less likely to return.” Many even felt that they “did not learn anything” after attending these programs, with 11% linking that to a reason “they did not return.”
Nevertheless, for those in programs and courses taught by experienced professionals such as professors and teachers, 89.9% of participants felt more relieved after attending a program they taught. These findings imply that programs in the status quo are often taught by unprofessional, inexperienced people, who often conduct worse atmospheres and cultures. Furthermore, it has been found that financial literacy programs are geographically hurtful for those who live further from esteemed educational institutions, and some programs are not adherent to socioeconomic, racial, ethnic, cultural, or gender identity, which makes participants less likely to return. In short, most financial literacy programs are of low quality, often perpetuate the borders between socioeconomic, racial, and ethnic statuses, and do not educate the participants efficiently.
Discussion:
Low-quality financial literacy programs often carry the implications of further inequality within the system at large. With inexperienced leaders, who are unprofessional concerning socioeconomic, ethnic, and racial differences, overcoming barriers in financial literacy becomes exceedingly more problematic, given that people are less likely to return. Consistent with the findings of Xu(2016), unconscious biases from unqualified educators create more division. The problem stems from the absolute, brought upon by third parties rather than educational institutions or qualified financial persons. BJET(2020) still has relevant findings within the bounds of this study, as courses taught by educational professionals have higher success rates and have derivatives that render a positive result. Psychologically, they also render their participants more confident and competent, making them happier due to the program. It should be the objective of these educational institutions to branch further than their adjacent communities. In doing so, they push their resources to neighborhoods that crucially need them and render the need for unqualified third parties obsolete. The study’s sample may only partially represent some individuals in low-income communities, as the study relies on partnerships with community-based organizations and local government agencies to identify participants. The study’s survey data is also subject to self-report bias. Participants may need to provide accurate or complete responses to questions about their financial literacy levels, financial behaviors, and attitudes toward financial education and institutions.
Additionally, the study’s findings may only generalize to some low-income communities. Financial literacy levels and financial outcomes can vary based on local economic and social factors, with the low-income areas of Chicago not being a universally applicable model. Finally, the study’s focus on financial literacy and financial education may overlook other important factors contributing to financial outcomes in low-income communities, such as employment opportunities, affordable housing, and healthcare. For future endeavors, conducting longitudinal studies to examine the long-term impact of financial literacy programs on financial outcomes in low-income communities could add to this research and render different results on the timeline of these impacts. Further, comparative analyses to examine the effectiveness of different types of financial literacy programs and identifying the best practices for promoting financial literacy and addressing financial inequality could be further aims of future research. Intersectionality analysis and policy analysis to explore the unique needs and experiences of individuals in low-income communities based on the intersection of race, ethnicity, and socioeconomic status, as well as to examine the impact of government policies and regulations on financial inequality and identify policy solutions to promote financial equity in low-income communities, could prove to be very helpful for building on top of the foundation of this research and is a direction that would be highly recommended for any future projects.
Conclusion:
In conclusion, this research aimed to explore the role of financial literacy programs in promoting financial literacy and addressing economic inequality in low-income communities, with a particular focus on the intersection of race, ethnicity, and socioeconomic status. The study utilized a mixed-methods approach, including a comprehensive literature review, survey, and qualitative research, to better understand the complex factors contributing to financial inequality in low-income communities regarding financial literacy programs. This research highlights the importance of financial literacy programs in promoting financial literacy, addressing financial disparities in low-income communities, and how they are generally abused within low-income neighborhoods. The study identified that financial literacy levels and financial outcomes are often shaped by structural factors such as systemic racism, discrimination, and lack of access to financial products and services, geographically and financially. Additionally, the study found that financial education programs, community-based organizations, and peer networks can play a crucial role in promoting financial literacy and addressing financial inequality in low-income communities. However, that role is often abused, making the participants worse off and “uncomfortable.”
In light of these findings, it is clear that financial literacy programs are a vital component of efforts to address financial inequality in low-income communities. Future research should focus on developing and implementing effective financial education programs tailored to individuals’ unique needs and experiences in low-income communities. Additionally, policymakers should work to address structural factors such as systemic racism and discrimination that contribute to financial inequality and limit access to financial products and services. This research underscores the importance of promoting financial literacy and addressing financial disparities in low-income communities. By investing in financial education programs and addressing structural factors contributing to financial inequality, policymakers and community leaders can help create more equitable and prosperous communities for all and less cyclical poverty for possible generations.
Sources
Global Financial Literacy Excellence Center (GFLEC). (2023, March 31). Retrieved April 2, 2023, from https://gflec.org/
Xu, L., & Zia, B. (2016, April 20). Financial literacy around the world: An overview of the evidence with practical suggestions for the way forward. SSRN. Retrieved April 2, 2023, from https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2094887
British Educational Research Association — Wiley Online Library. (n.d.). Retrieved April 3, 2023, from https://bera-journals.onlinelibrary.wiley.com/
“How Do We Make Financial Literacy Education More Effective?” iGrad, www.igradfinancialwellness.com/blog/how-do-we-make-financial-literacy-education-more-effective. Accessed 31 May 2023.
