Shyam Pradheep is the General Manager of Zogo and currently lives in Austin, Texas.
Financial literacy is the foundation of financial wellness. It prepares individuals with the fundamental knowledge they need to make the best decisions for their individual circumstances.
Not only does financial literacy benefit individuals in their financial journeys, but it also benefits financial institutions because better-informed customers are often better, more active customers. Having helped coordinate financial education programs for over 250 banks and credit unions, I’ve seen firsthand how financial literacy advances holistic financial wellness for individuals and businesses alike.
Unfortunately, the 2023 P-Fin Index reveals that the majority of Americans are not prepared with the essential knowledge and skills they need to survive financially, which poses serious problems for individuals and financial institutions alike. In fact, the alarm bells are ringing even louder now, as the number of American adults who can correctly answer just half of personal finance questions has dropped to 48%.
Counterintuitively, this decline in financial literacy comes despite the proliferation of financial education programs in recent years—many of them spearheaded by the savvy financial institution and business leaders scrolling this page. While these initiatives often provide value to both individuals and institutions, it’s nonetheless clear that these programs in their current form are failing to make a meaningful dent in the financial literacy crisis as a whole.
This may be disheartening to those of us already overwhelmed by the daunting task of solving the financial literacy crisis. But instead of ringing the alarm bells, organizations can retarget their financial education programs to address the most significant issues and make a meaningful, measurable impact. Here’s how:
Target specific subjects.
While it’s important to provide comprehensive financial education on wide-ranging topics to best empower your community, there are a few common areas of finance people tend to struggle with.
When measuring areas of functional financial literacy, people score the lowest when tested on the categories of investing, insurance and risk comprehension. Not only do these numbers point to a need for special education attention on these three topics, but larger external trends do as well. For example, the rise in retail investing requires an increase in focus on investor education, and the possible impending recession requires consumers to have better risk comprehension.
As you shape your financial literacy program’s priorities, it’s essential to emphasize specific subjects to move the needle on the financial literacy crisis.
A great way to find the subjects your community needs targeted attention on is to send out surveys and analyze internal data. Surveys help collect attitudinal data and measure people’s perceptions of their financial behavior. Asking about the topics people are most interested in or feel least confident about can help you shape the subjects you emphasize.
Further, comparing survey data to your internal data regarding people’s actual financial behavior can deepen your insights and give you an advantage in determining the best next steps for your community.
But it’s not just about what you focus on teaching—who you focus on matters just as much.
Focus on people.
Everyone deserves access to financial education, but some people need it more urgently than others. Women, young people and people of color score disproportionately worse on financial literacy surveys. This isn’t because they’re inherently less intelligent or financially adept, but because they’ve historically and systemically had less access to personal finance education. One of the biggest parts of solving the financial literacy crisis is closing these gaps.
It’s critical that your financial literacy initiatives emphasize providing education to minority groups. One strategy is to partner with another organization, such as nonprofits that focus on women, POC or Gen Z, to better engage these underrepresented groups. Pairing your financial education programming with targeted community outreach can help close the financial literacy gaps across racial, gender and age divisions.
This is one of the most significant efforts you can make in your programming as it targets the most in-need groups for financial literacy and provides meaningful data for your ESG/DEI initiatives.
Prioritize learning outcomes.
Financial literacy isn’t about passing a test; it’s about setting people up for success in life. As you sharpen your financial education programs, focus on behavioral outcomes. Design an action-oriented curriculum that incentivizes people to take actions that set themselves up for long-term stability and prosperity. For example, instead of just telling learners to “have an emergency fund,” help them understand how to calculate what they need in an emergency fund and what steps they need to take to save that money.
This is also a great way to test the efficacy of your education! Set an action-oriented goal for each lesson and then check in with learners to see if they’ve pursued that behavior. The more who have, the more effective your program. The fewer, the more reason to redesign the education to better incentivize real-world application.
By taking an outcome-oriented approach, you can have a more comprehensive and significant impact on your community’s financial literacy and wellness.
While the state of financial literacy today may be alarming, we can take steps to fix it. It’s incumbent on us all to improve our financial education programs to forge a better tomorrow.
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