Financial Illiteracy
Financial illiteracy is one of the most insidious and dangerous social realities which is preventing underprivileged groups from building strong and self-reliant systems. Being financially illiterate means that one doesn’t understand the value of money or the systems and tools built around financial instruments and how they can be used to one’s benefit. Some people see these descriptions and immediately dismiss this notion as only applying to those who are in a place to invest thousands of dollars in stocks and bonds, and speak in terms of portfolios and wealth. This could not be further from the truth — financial literacy is more important for those who are in the lower to middle-income groups than any other economic group as it exposes the tools and strategies that someone can use to rise beyond their economic barriers. However, financial services are designed, in general, to cater to middle and high-income individuals, which results in giving ill-suited advice to people in low-income situations. Additionally, people in low-income situations find financial institutions unfriendly, intimidating, and hard to navigate and understand. All of this combines to create an environment where someone who is in the low-income bracket doesn’t want to go to a financial institution, and when they do go, they are given advice that doesn’t help them. Its a self-fulfilling prophecy of the worst kind that the very institution that should be used to build stability is designed to alienate those who need it most.
Incarceration
Recently the University of Arkansas conducted a study in collaboration with the Arkansas Department of Corrections which showed that financial literacy amongst inmates is lower than that of the typical American. To be more specific, this gap is even greater when we look at the difference between white and non-white inmates. Nearly 20% fewer non-white inmates had opened a checking account compared to white inmates. Further, non-white inmates failed a question on interest rate computation at more than double the rate of white inmates. In the same study, it was shown that more than half of the approximately 600,000 prisoners released back into society were reincarcerated within three years, most of whom are from low income, inner-city and ethnic areas. Additionally one of the key outcomes of the study was that although an income source is important, the skills required to gain assets are equally as important and painfully missing. Again, ‘gaining assets’ is colloquially thought to be a privilege reserved for the upper-middle class — but in reality, it is a mindset that can be shared by anyone of any income level. In the book, Rich Dad, Poor Dad, Robert Kiyosaki makes a point that being financially literate is the single most important action a low-income individual can take to increase their economic standing. The simple fact of the matter is that financial instruments have become more and more accessible (like buying ETFs for free with WealthSimple Trade), but financial education and financial institutions have not.
Systemic Racism
The story being told here is one where a disproportionately large percentage of inmates are BIPOC (Black, Indigenous, People Of Color), of whom a majority are from low income, financially illiterate areas. When you add in the fact that most inmates who are reincarcerated within 3 years come from these same areas, it becomes painfully obvious that our current financial system is woefully inadequate and does not in any way service at-risk BIPOC communities. They are the most likely groups to be incarcerated, and they also show the highest rates of re-incarceration because the tools and systems needed to help build stability all but ignore their needs. In systems speak, we call this a feedback loop because the output (people of colour released from the correctional system) feeds back into the input (being incarcerated)by way of one or many stakeholder connections (financial, social, and educational instability). It is the responsibility of those of us who work in the financial sector and have the ability to drive change and innovation in the industry to service those who need it the most. It should be our goal to create programs, services, and interfaces that are accessible and useable by those from lower-income areas. It’s also important to focus on the technologies and touchpoints to which they have access. Mapping out all the interactions between primary users (individuals with low income), secondary users (their families and acquaintances), and other stakeholders (banks, credit unions, etc) will give us the ability to pinpoint pain areas, access points, and areas of improvement that can ripple out through the system. The user-centric design methodology, which the financial industry insists it uses, emphasizes putting the user first — its high time that we change that focus to the users who need it most.
Source: https://www.sciencedaily.com/releases/2014/06/140618163924.htm