Updated: Oct 3
“I hear and I forget. I see and I remember. I do and I understand.”
No one would argue with the notion of hands-on experience solidifying knowledge obtained from others. Learning by doing is a mantra shared by all. But what does this mean for financial education as it relates to most Americans -- more specifically low-wealth communities? Thousands of financial education programs are offered by financial institutions, advisors, nonprofits, and independent organizations. While led with good intentions, how do these programs reconcile the examples and the lens from which they approach the curriculum? Does the education improve a person’s financial wellbeing? The short answer is no. Here’s why.
Foremost, all financial education must set the context of the situation in which we are living. This acknowledges that there are haves and have-nots and that the system has largely been designed to exclude the many for the few. It also recognizes the racial wealth gap, that financial systems extract value, and that wages have not kept up with inflation. It is disingenuous to teach financial education to people without acknowledging that there are circumstances beyond their control. Honesty about the circumstances, coupled with a positive futurist tone, lays the foundation for a behavior-based approach to financial education.
It is critical to be aware of and design for the lived experience of low-wealth individuals. Financial curriculum often lacks awareness of the day-to-day realities people are facing. It doesn’t recognize that many Americans are spending far more than the “suggested average” of their income on rent, nor does it acknowledge the increase in cost of living with the stagnation and decline of wages. Poverty, and living on the precipice of poverty, is traumatic. Financial education must incorporate trauma-informed practices to anticipate and design for the high cognitive loads people in poverty have. The financial stress of debt, paying bills, and maintaining basic living needs of rent and food is about survival. The ability to apply something to one’s real-life situation has been found to be much more effective to commit a concept to memory. Without understanding of lived experiences, challenges and thought processes, financial education is like a boat without a rudder. One research study even suggested “a narrower role for ‘just-in-time’ financial education tied to specific behaviors it intends to help,” and importantly finding “a reduced role for financial education that is not elaborated or acted upon soon afterward.”
It’s also important that financial education employ cognitive behavioral therapy (CBT) practices. CBT and other interventions seek to change patterns of thought and affect positive behavioral change. Recently, CBT has been integrated with financial education to address financial stress and assist individuals by identifying negative thoughts and transition them to positive thoughts and behaviors.
The financial services industry is designed to exclude low-wealth individuals with a tiered product structure that favors those with more assets. Once again, it’s disingenuous to talk about financial education without acknowledging that low-wealth individuals are shut out from access to better financial products, paying higher costs, earning less interest, with limited or no access to fair loan terms. Where does this leave individuals on the lower rung of wealth?
Financial education alone doesn’t change behavior. It requires connecting curriculum with direct experiences in the financial system through selecting and using accounts and products. Access to fair and appropriate accounts and products that integrate the low-wealth individual within our economic system is essential — building trust, empowering them save, obtaining credit at fair rates, and increasing wealth over time to achieve financial stability.
For over 20 years, Community Financial Resources has seen that action-oriented education builds capabilities because individuals can seek the right accounts and products for their specific needs, and its usage increases learning and self-empowerment. This is why we created basic banking, a low-cost payroll card with a free savings account, flexible credit-building products, and yes, trauma-informed education modules that utilize CBT practices. We also know that financial goal-setting is more effective when broken down into bite-sized pieces to help the individual tackle one goal at a time. This approach is integrated into our financial health app MoneyGoals -- which can be downloaded for free here (Apple Store) and here (Google Store).
It’s time for those involved in financial education to view their teaching through a different lens, that of the low-wealth individual who would benefit the most. Provide action-oriented learning through direct experience with appropriate accounts, products and technology to address their specific needs. Otherwise, how can you justify a financial education program if it doesn’t change behavior and help the individual achieve financial stability and mobility?