Financial literacy competences for people in poverty
Author: Kenneth De Beckker (KU Leuven)
Photo credit: Pexels, Robert Bogdan
This blog is a summary of the key findings of a study carried out by researchers from the Faculty of Economics and Business and the Research Institute for Work and Society (HIVA) – KU Leuven (Belgium) (De Beckker, Smits, Maldonado, Vermeersch, & De Witte, 2020). In this study we analyze the financial literacy of the Flemish population, with special attention to people in poverty.
In general, literacy refers to the ability to apply certain information and to function in society, to achieve personal goals and to develop personal knowledge and skills. Specifically, financial literacy is defined by the OECD as “A combination of awareness, knowledge, skills, attitudes and behavior necessary to make sound financial decisions and ultimately achieve individual financial well-being” (OECD, 2016; 47).
The context in which financial literacy is defined matters. For example, the needs and goals of people in poverty may differ from people who do not experience poverty. In other words, it is not appropriate to interpret financial competences (or lack thereof) only from the perspective of those who do not experience poverty.
Determinants of financial literacy
In the report, we also examine deeper the determinants of financial literacy. In addition to socio-economic factors, financial socialization appears to be an important factor. By socialization we understand learning things in an often unconscious way through the habits of the group(s) in which one lives. Researchers have looked at the influence of many socialization agents such as family, school or work.
However, the main form of socialization takes place through parents. The way in which money is handled within a family is reflected in how a child deals with financial matters. Hereby, the parents' background plays a crucial role. Firstly, there is a clear positive relationship between the level of education of the parents and the financial literacy levels of their children. In addition, the social-economic background of the parents appears to play a role. Middle-class parents seem to be more proactive in the financial education of their children than working-class parents. Moreover, the latter often feel too little educated themselves to provide their children the necessary financial education. For people growing up in poverty, this often means a vicious circle. So it is essential to break this vicious circle for financial literacy and to reach people with specific needs.
Assistance offer
In order to strengthen people in their financial literacy, many organizations in Flanders are working on this theme in various ways. When mapping organizations that offer financial literacy, it appears first of all that no organization has financial literacy as its main focus. In some organizations, we observe that sub-organizations or initiatives are developed that focus on financial literacy.
Moreover, the current offer mainly tries to lower organizational and practical barriers for the individual. However, our research shows that also psychological barriers such as shame and stigmatization play a role for many people.
Recommendations
The report concludes with a number of recommendations with regard to policy. As far as education is concerned, it is recommended that the recent focus on financial literacy will be continued. Education offers the advantage that a broad group in society can be reached. Moreover, the foundation can be laid in education, which can be supplemented with more targeted just-in-time initiatives and information later in life.
With regard to civil society organizations that deal with financial literacy, it is important that the subject is given more explicit attention. It is also important that the topic is not only approached in a corrective or curative manner (such as today at OCMWs, Budget In Zicht), but also explicitly preventive or informative (such as with Wikifin).
Finally, the scientific research on the theme also shows a number of shortcomings. First of all, there is little data available to make specific statements about financial literacy among people in poverty. Moreover, questionnaires that assess the financial literacy competences of people in poverty often turn out not to be adapted to the specific situation of people in poverty.
References
De Beckker, K., Smits, I., Maldonado, J.E., Vermeersch, L., & De Witte, K. (2020). Onderzoek naar de financiële geletterdheidscompetenties van mensen in armoede. https://armoede.vlaanderen.be/sites/default/files/media/FinLit_eindrapport_20april2020.pdf
OECD (2016). OECD/INFE International survey of adult financial literacy competencies. Paris: OECD Publishing.