Promote Youth Financial Literacy

What are the Forces and Influences at Work?

• Children and youth do not have access to financial education: Research shows that financial education has an impact on financial knowledge, skills, and behavior, and that financial literacy is a predictor of saving and other important financial decisions.  Lusardi and Mitchell found that it is important to start financial education in the early years of a child’s life when financial practices are formed and imbedded, financial education is not one size fits all and should be targeted to support diverse needs, one-time financial workshops or seminars are likely to be ineffective, simplification of financial terms and calculations are important for those less financially literate and financial advice and literacy are essential tools for decision making.[1]
• The poor often lack of access to financial services and institutions:  Youth from low-income families lack access to financial knowledge and mainstream financial services.[2]  As a result, low-income youth and their families are less likely to have checking and savings accounts, investments and insurance.[3]  Additionally, children in foster care and the juvenile justice system have limited financial opportunities, which affect the overall economic stability of low-income youth within these public systems.  The financial habits and motivation of young people result from opportunities to engage with personal finance and financial institutions.  Children and youth who have opportunities to develop money management knowledge and skills are better equipped to build wealth and assets. 
• Families are living in poverty:  Low-income families and youth have different experiences and needs regarding financial literacy.  For instance, poor individuals who are struggling to meet day-to-day needs have different financial concerns and behaviors than those with income to invest.[4]  A report by the Family Strengthening Policy Center, shows that “across a wide range of measures, children and youth from lower income families do not fare as well as their peers in higher income groups.”[5]  They found that the risks associated with lower incomes are not character weakness, but rather due to resource disparities.[6]  Financial stress is associated with higher incidence of mental and physical problems.  Financial stress and deteriorating financial circumstances can have severe effects on children including mental health problems, depression, loneliness, low self esteem, behavior problems in school, and susceptibility to peer pressure and alcohol and drug problems, as well as poor school performance.[7]
• There is widespread financial illiteracy: A 2005 report by the Organization for Economic Co-operation and Development (OECD) indicates that financial illiteracy is widespread across age groups and geographical areas, particularly among vulnerable groups including, women, minorities, and those with low levels of education.[8]  Those who are more educated generally are also more likely to answer questions on a financial literacy survey correctly.  Individuals with lower levels of education are disproportionately represented among the “unbanked” or those lacking any kind of transaction account.[9]  Low-income youth are more likely than their more affluent peers to be unemployed and work in low or unskilled jobs and be poorly paid in adult life.[10]  There is also disproportionality across race and ethnicity, as African Americans and Hispanics scored lower on financial literacy surveys.[11]  This has serious implications for saving and financial decision-making, especially for low-income young people of color. 
• Racial disparities exist in wealth accumulation: According to the Pew Research Center analysis of 2009 data from the government, “the median wealth of White households is 20 times that of Black households and 18 times that of Hispanic households.”[12]  Shapiro, Meschede, and Sullivan discuss wealth as what you own minus what you owe, which allows individuals to start a business, buy a home, pay for college and ensure a secure retirement.  They argue that, “without wealth, families and communities cannot become and remain economically secure."[13]

[1] Lusardi, A., & Mitchell, S.  (2009).  Financial Literacy: Evidence and Implications for Financial Education.  TIAA-CREF Institute.  Retrieved from http://www.tiaa-crefinstitute.org/ucm/groups/content/@ap_ucm_p_tcp_docs/documents/document/tiaa02029471.pdf

[2] Johnson, E., & Sherraden, M.S. (2007). From financial literacy to financial capability among youth. Journal of Sociology and Social Welfare 34(3), 119-145.

[3] Johnson, E., & Sherraden, M.S. (2007). From financial literacy to financial capability among youth. Journal of Sociology and Social Welfare 34(3), 119-145.  Retrieved from http://csd.wustl.edu/Publications/Documents/WP06-11.pdf

[4] Sebstad, J., Cohen, M., & Stack, K.  (2006). Assessing the Outcomes of Financial Education.  Retrieved from http://www.ctmoney.org/Resources/Documents/Sebstad_AssesingOutcomesFinEd_2006.pdf

[5] Family Strengthening Policy Center. (2007).  Family Strengthening Writ Large: On Becoming a Nation that Promote Strong Families and Successful Youth.  Retrieved from http://www.nationalassembly.org/fspc/documents/PolicyBriefs/Brief24.pdf

[6] Family Strengthening Policy Center. (2007).  Family Strengthening Writ Large: On Becoming a Nation that Promote Strong Families and Successful Youth.  Retrieved from http://www.nationalassembly.org/fspc/documents/PolicyBriefs/Brief24.pdf

[7] Davis, C. & Mantler, J.  (2004).  The Consequences of Financial Stress for Individuals, Families, and Society.  Retrieved from http://http-server.carleton.ca/~jmantler/pdfs/financial%20distress%20DSI.pdf

[8]  Lusardi, A., & Mitchell, O.  (2009).  Financial Literacy: Evidence and Implications for Financial Education.  TIAA-CREF Institute.  Retrieved from http://www.tiaa-crefinstitute.org/ucm/groups/content/@ap_ucm_p_tcp_docs/documents/document/tiaa02029471.pdf

[9] Lusardi, A., & Mitchell, O.  (2009).  Financial Literacy: Evidence and Implications for Financial Education.  TIAA-CREF Institute.  Retrieved from http://www.tiaa-crefinstitute.org/ucm/groups/content/@ap_ucm_p_tcp_docs/documents/document/tiaa02029471.pdf

[10] Griggs, J & Walker, R. (2008).  The Costs of Child Poverty for Individuals and Society: A Literature Review.  Joseph Rowntree Foundation.  Retrieved from http://www.jrf.org.uk/system/files/2301-child-poverty-costs.pdf

[11] Lusardi, A. & Mitchell, O.  (2009).  Financial Literacy: Evidence and Implications for Financial Education.  TIAA-CREF Institute.  Retrieved from http://www.tiaa-crefinstitute.org/ucm/groups/content/@ap_ucm_p_tcp_docs/documents/document/tiaa02029471.pdf

[12] Kochhar, R., Fry, R., & Taylor, P. (2011).  Wealth Gaps Rise to Record High Between Whites, Blacks and Hispanics.  Pew Center Research Publications.  Retrieved from http://pewresearch.org/pubs/2069/housing-bubble-subprime-mortgages-hispanics-blacks-household-wealth-disparity

[13] Shapiro, T., Meschede, T., & Sullivan, L.  (2010).  The Racial Wealth gap Increases Fourfold.  Institute on Assets and Social Policy.  Retrieved from http://iasp.brandeis.edu/pdfs/Racial-Wealth-Gap-Brief.pdf