Academic journal article The Journal of Consumer Affairs

Creating Financial Capability in the Next Generation: An Introduction to the Special Issue

Academic journal article The Journal of Consumer Affairs

Creating Financial Capability in the Next Generation: An Introduction to the Special Issue

Article excerpt

The Great Recession revealed the financial vulnerability of millions of US households. In its aftermath, researchers and policymakers have turned their attention to improving the next generation's knowledge of personal finance and its access to secure financial offerings (US Department of the Treasury 2014). Nearly all experts agree that such efforts should start early in children's lives. Less clear, however, is the age or stage at which to start these processes, and no consensus has identified the programs and policies best suited to accomplish this important goal. This special issue of The Journal of Consumer Affairs, which we developed in collaboration with the Financial Literacy and Education Commission (FLEC), presents a collection of studies that explore starting early to develop financial capability. The concept of financial capability combines people's ability to act with their opportunity to act in their best financial interests (Sherraden 2013, 3). It takes into account what people know and the skills they have to manage their financial affairs. And it also takes into account opportunities to improve their financial well-being. People need both--financial ability (i.e., knowledge and skills) and financial inclusion (i.e., safe and appropriate financial policies, products, and services)--to build financially secure and hopeful lives.

THREE TRENDS

Efforts to increase financial capability are occurring in the context of three trends. The first is the rising complexity of everyday financial decision making. Recent national surveys show that the financial knowledge and skills of Americans, including those of young people, are not keeping pace with the demands of financial life (FINRA Investor Education Foundation 2013; Lusardi, Mitchell, and Curto 2010; Mottola 2014). People are often unprepared to use the quickly expanding array of available financial products and services. These include mainstream and alternative financial products as well as emerging technologies in financial services. With the entrance of big box stores and mobile technology into financial services, the landscape is changing and it is becoming easier for people to conduct financial transactions without a traditional bank account, yet these new offerings add to the complexity (Tabuchi and Silver-Greenberg 2014). Although young people likely have an advantage over older generations in making sense of emerging technologies, the proliferation of products and platforms challenges the understanding and skills of many.

A second trend is that young people confront high-stakes financial decisions earlier in life than was common a generation ago. For example, many take on levels of student debt and other debt that their parents did not experience at their age. They are often unprepared to make such critical financial decisions, which can have profound impacts on educational, vocational, and financial well-being over the life span (Emmons and Noeth 2014). For example, the share of young households (headed by someone under age 40) with student loan debt increased from 22.4% in 2001 to 38.8% in 2013, and average debt levels nearly doubled during the same period, rising from $16,900 to $29,800 (Bricker et al. 2014). Although the economic advantages of postsecondary credentials are clear and some loan programs consider a borrower's income in setting payment levels, the age at which a youth takes on student debt is correlated with the size of the debt, and high debt makes it difficult to develop a solid financial footing (Elliott and Nam 2013; Huang et al. 2015). The difficulty is even greater for youth who accumulate education debt but do not graduate.

A third trend is that many families with children are struggling financially. Young and minority families fared poorly in the Great Recession (Emmons and Noeth 2014), and one in five children lives in poverty (Gabe 2014). In the low-wage job sector, many families lack workplace benefits such as insurance and retirement savings (Crain and Sherraden 2014). …

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