Why Is Financial Literacy Important?
I originally planned to write a journal post highlighting some of our favorite financial technology (fintech) solutions that aim to create financial inclusion. The plan went awry when I had trouble finding solutions that address the most critical element of financial inclusion: financial literacy.
The Center for Financial Inclusion defines financial inclusion as a state in which all people who can use them have access to a full suite of quality financial services, provided at affordable prices, in a convenient manner, and with dignity for the clients. The key elements to financial inclusion are:
- Financial literacy
- A wide range of product offerings
- Quality financial products
- Large reach/access
- A competitive landscape
It’s apparent that without a basic understanding of “why” financial exclusion is hurting you, one cannot totally embrace the “how” of financial inclusion efforts.
What is financial literacy? There are several definitions, but put simply it’s an understanding of how money is earned and how to use it with a high degree of skill. This is something that is not widely mastered as a recent study by Annamaria Lusardi, financial literacy guru, shows that 65% of Americans between 25 and 65 are financially illiterate. This widespread problem is class, income, and racially agnostic. To dive deeper into the subject I highly encourage you to read the May 2016 article from The Atlantic for more detail.
Now this isn’t a new problem, and there have been many programs built to address it. Case in point: the U.S. government has spent hundreds of millions of dollars on financial literacy programs over the years, which is well intentioned but not necessarily effective (or efficient according to the Government Accountability Office). Reading through their strategy documents, it’s clear they have a passion for financial literacy and a plan to improve it. So how come it ended up with ad campaigns like feedthepig.org?
I don’t mean to pick on the federal efforts to improve financial literacy, in fact, I’m thankful for them as I believe they have helped inform many people. Their programs are simply not engaging and are too programmatic. They are designed like FAQs as opposed to financial journeys that mirror the events of the financially illiterate.
This widespread problem is class, income, and racially agnostic.
There are numerous, non-governmental, sites out there which are easy to use and highly informative. Sites like NerdWallet are a great resource for many big financial decisions such as paying for college and buying a home, as well as articles identifying the true cost of payday lending. Again, you need to know what you’re looking for to gain insight.
At Access Ventures we look to invest in organizations, ideas, and initiatives that help build inclusive economies. We are presently looking to invest in a solution that is built for the financially excluded. We want a product that is light on structured education and high on engagement. If you have this program, please reach out to us at info@accessventures.org.
