One intent of teaching financial literacy skills is to narrow the socioeconomic gap. Through improved access to financial systems and better financial decision-making, those who are most marginalized should see their financial conditions improved.
Whether the existing systems are sufficient to produce this effect is not debatable — they’re simply not yet capable of significantly narrowing the gap. It will take targeted efforts to make financial literacy inclusive for all.
Financial Literacy and Financial Inclusion
Financial literacy lacks a common definition, but can be broadly defined to mean the knowledge or skills necessary to effectively use financial systems. Access to the systems is also important: Financial skills come in part from use; people tend to get better as they gain experience.
Financial inclusion is equality in availability and opportunity within financial systems. It is a separate problem. Addressing financial literacy can improve financial inclusion, but systems need to change as well. Helping people use systems effectively is part of the problem; they need to have the systems reasonably available to be able to use them.
Financial technology (fintech) can serve both issues. Fintech can help make both financial education and other financial literacy programs available to anyone with access to the technology. It can also bring the systems to the users. Some of the highest need areas seem to have the worst brick-and-mortar financial infrastructure.
Fintech can leap past the need to build or rebuild physical infrastructure. It may simultaneously make a lot of the existing physical infrastructure unnecessary or obsolete. Fintech expands reach but doesn’t reach everyone. There are still segments of the population without this access.
Teaching Financial Literacy Skills to Marginalized Populations
According to the World Bank, nearly a third the world’s adult working population is excluded from the financial system. The poor, especially women, are most likely to suffer from financial exclusion. The cost of this exclusion is phenomenal. Over half the world’s working population is excluded from the financial system. That’s huge.
There seems to be a chicken-or-egg question here: Is it that the most marginalized are excluded from the financial system, or are they the most marginalized because they are excluded from the financial system?
Perhaps the answer is a combination of the two. Perhaps the most marginalized are likely to remain marginalized because they are excluded from the financial system.
Traditional financial institutions have embraced financial literacy. There is an increased awareness of the problem and an increased number of potential solutions. Many financial institutions have added financial literacy education to their offerings to their customers.
Naturally, a financial institution providing financial education to its customers is good and desirable. It addresses a part of the problem, a part of the financial literacy problem, but not the inclusion problem.
If you’re the customer of a financial institution availing yourself of financial education on their website, then you are not one of the financially excluded.
These programs are meaningful and important, but they lack reach.
Financial efforts through such organizations should be encouraged and expanded. But they are insufficient in and of themselves to address the broad scope of the problem.
Some other approaches may do more to address the inclusion problem. Microfinance often meets people where they are and addresses needs of populations not traditionally served by banks or other lending institutions.
Credit unions may also serve some additional remote or underserved populations, expanding reach beyond that provided by traditional institutions. Community organizations can also help in areas neglected by the big players in the financial arena.
The point is that it is not going to happen on its own. Organizations need to make specific efforts to be more inclusive to address the problem.
The Role of Educational Institutions
Schools are touted as a solution, with proponents calling for mandatory financial literacy education in the K–12 system in all 50 states. Presently about half the states have some sort of mandated personal finance education. Hopefully we’ll get to all 50 as these efforts continue to gain awareness and momentum. But there’s still a problem here.
What happens in the dense urban districts with graduation rates of less than 50 percent? Are we to believe that by some miracle or karmic intervention those students who somehow fell out of the system without learning to read beyond a rudimentary level somehow garnered financial skills before they drifted away? It seems unlikely.
Mandates are great when they’re followed. It would be naive of us to assume that mandates are the same as reality. Hopefully the mandates move us in the right direction; that seems plausible. Mandates are not going to get every person who enters the education system to leave with a good financial foundation. That’s not reality, not now.
Many of us would love to see our broken education system fixed. But we can’t afford to wait this one out.
We need to encourage the expansion of financial literacy efforts into community organizations, churches, correctional facilities, and employers. We need to meet people where they are. We especially need to meet them where they are when that’s where the traditional institutions are not.
The Role of Hope
If you believe your situation is hopeless, you believe you cannot affect change. And if you believe you cannot affect change, you’re not going to seek out ways to make that change that you know you cannot make. Hope is necessary for positive change.
The work of financial literacy efforts, especially with the most marginalized populations, often extends beyond strict financial knowledge and into the behavioral realm.
We don’t need to just show people how to improve their financial situations, we also need to show them that they can improve their financial situations. We need to instill and foster hope. We need financial literacy that works with people along the path from where they are to where they could be.
We need financial literacy that empowers people to want to be their own agents for change. We need financial literacy that causes people to demand inclusion.
The Bottom Line
The growth and improvement in financial literacy in the last 15 to 20 years is remarkable. The quality of the efforts and the individuals and organizations behind the efforts is beyond impressive. So much has been accomplished. I stand in awe.
I also stand in awe at what still needs to be done. There has been a fantastic foundation built. The opportunity to continue to move that foundation to be even more far reaching and more inclusive is our collective call going forward.
Financial literacy skills can be empowering and enhancing for everyone. To be that for everyone, it needs to include everyone. It needs to bring the systems and programs developed or being developed beyond the populations presently being reached.
The present efforts are laudable. Yet we can do even more. We can do more systemically, and we can do more inclusively.