Tyler Mulligan is a School of Government faculty member.
This post is part of a series that highlights approaches described in a School of Government web guide on asset-building tactics for individuals and communities on the economic margin.
A prior post explains the benefits that result when low-income households contribute to savings accounts and accumulate assets. For example, asset accumulation has been connected to increased educational attainment, better health outcomes, and increased local civic participation, among others. Communities can encourage asset accumulation by sponsoring matched savings programs known as individual development accounts (IDAs).
However, even with matched savings programs in place, it can be difficult for low-income households to save. Low-income persons often find themselves in a financial environment rife with predatory financial products, such as payday loans and mortgage rescue scams, which are designed to exploit the vulnerabilities of low-income populations. To navigate these treacherous financial waters, low-income persons need a better understanding of the risks associated with the entire range of financial products. A person’s understanding of financial products is sometimes referred to as that person’s “financial literacy.” To improve the financial literacy of low-income persons, some communities have established financial education programs.
A lack of financial literacy is a growing problem nationwide. Financial literacy rates have been decreasing steadily over the past decade, and they are particularly low among the poor, those with less education, and some minorities. The poor, who are generally less likely than other groups to have access to mainstream banking, have less personal experience with financial products. The rural poor face special challenges. The rural financial landscape is characterized by a greater prevalence of predatory mortgage lending, higher mortgage loan interest rates, and fewer local banking institutions. Financial education may well be essential to the financial success of low-income populations.
As explained in the School of Government web guide on asset-building tactics, there are four basic approaches to financial education:
•Provide financial education for young people
•Bring financial education to the workplace
•Tailor financial education to community needs
•Increase availability of financial coaching for low-income individuals
More detail on these approaches will be provided in future posts, but you can read about them now in the asset-building guide here.