Financial Knowledge of the Low-Income Population: Effects of a Financial Education Program
Zhan, Min, Anderson, Steven G., Scott, Jeff, Journal of Sociology & Social Welfare
This study examines the effects of one large financial management training program for low-income people. The data are from tests of pre- and post-training financial knowledge of 163 participants. The test was designed to measure basic knowledge of participants in five content areas: predatory lending practices, public and work-related benefits, banking practices, savings and investing strategies, and credit use and interest rates.
The findings demonstrate that substantial pre-training knowledge deficiencies existed on basic financial management issues, especially on public and work-related benefits and savings and investing. Results also indicate that the program was effective in improving the financial knowledge of participants in each of the five content areas. Further analyses suggest that pre-training knowledge and levels varied according to participant characteristics. In addition, participants' education, English proficiency, race / ethnicity, and marital status were associated with their knowledge gains from the program. Policy and practice implications for developing effective financial management training for the low-income population are discussed.
Keywords: financial knowledge, financial management training, low-income audience, welfare reform
Two factors have fostered the development of financial training programs for low-income people in recent years. First, the role of financial literacy in promoting economic well-being has increasingly been recognized (Bernheim, 1998; Jacob, Hudson & Bush, 2000). As a result, financial management training programs have emerged for diverse audiences such as employees and youth. Some of these programs have been targeted on low-income consumers, who are particularly at risk of financial illiteracy (Jacob, Hudson, & Bush, 2000). Second, the implementation of Temporary Assistance for Needy Families (TANF) programs in 1996 has resulted in large welfare caseload decreases. However, studies have found that many welfare leavers face troubling economic circumstances, and in turn may face increasing pressures to manage limited resources (Anderson & Gryzlak, 2002; Cancian, 2001; Loprest, 2001). This has generated increasing interest in educational and investment approaches designed to enhance long-term self-sufficiency among welfare recipients and the working poor.
Financial management training programs are one such approach. As a specialized form of human capital development strategy, these programs are designed to help the low-income population improve their financial decision-making skills. This is intended to help low-income persons access financial information and opportunities, and to utilize their resources more efficiently.
Despite the growth of financial management training programs, and anecdotal evidence supporting the notion that such programs can improve financial management skills of low-income persons, empirical studies on program effects have not been adequate (Caskey, 2001). Even less is known about how different participant characteristics are related to financial knowledge and to program effectiveness. In order to develop these programs more effectively, it is important to examine whether they are effective, as well as whether program success varies with the characteristics of participants.
In this article, we examine financial knowledge of participants before and after they received training from one financial management program targeted at low-income audiences. We begin by reviewing previous research on financial literacy and the effects of financial management programs, with special attention to the low-income population. Analyses are then conducted to assess initial knowledge and knowledge improvement among participants. We also examine how participant characteristics are related to pre-training financial knowledge and to program effectiveness. The implications for financial management training targeted on low-income persons are discussed. …