Targeting Financial Management Training at Low-Income Audiences

While interest in financial management training programs for low-income persons has grown in recent years, the specific training needs of low-income consumers have not been well articulated. This article describes needed training content for such audiences, based on review of previous research and the authors' experiences in evaluating the Financial Links for Low-Income People (FLLIP) program. We also illustrate how the choice of financial management training models can seriously impact the subgroups of the low-income population who attend training, as well as the success of programs in recruiting and graduating participants. The implications of these findings both for financial management curriculum development and for the selection of program models are presented. ********** As financial management training programs have proliferated, a second largely unrelated public policy stream has changed the systems of income and support services available to low-income persons. State-operated Temporary Assistance for Needy Families (TANF) programs have established strict work requirements and lifetime time limits on welfare receipt. These welfare system changes have been accompanied by growth in public supports for working low-income persons, such as expansion of the Earned Income Tax Credit (EITC), child care subsidies, and Children's Health Insurance Programs (CHIP). Large reductions in welfare caseloads subsequently have occurred, but studies have found that those who leave TANF typically do not escape poverty (Anderson and Gryzlak 2002; Loprest 2001). Helping current and former welfare recipients to maximize the use of limited financial resources consequently is critical to their economic well-being. The need for improved financial education extends beyond the segment of the low-income population affected by welfare reforms. Wealth inequality in the United States is much more pervasive than income inequality, leaving low-income persons vulnerable when financial crises arise (Oliver and Shapiro 1995; Wolff 1995). Analyses of the 1998 Survey of Consumer Finances indicate that households with incomes of less than $10,000 had median net worth of $3,950, as compared to $24,650 for households with $10,000-24,999 in income and $152,100 for households with $50,000-99,999 in income (Montalto 2002). Further, the net worth of low-income households actually declined during the prosperous 1995-1998 period (Montalto 2002). Many low-income persons appear ill-prepared to respond well to these precarious economic circumstances. General consumer surveys have found that low-income persons are less likely than those with higher incomes to be financially educated (Bernheim 1998; Brobeck 2002; Consumer Federation of America 1990). The limited access many low-income persons have to financial and community institutions may exacerbate these deficiencies. For example, poor communities often suffer from a lack of banks or other financial institutions (Avery, Bostic, Calem, and Canner 1997). This not only limits the experiential learning that occurs when persons use mainstream financial services, but also creates susceptibility to predatory financial practices in many low-income neighborhoods (Rhine, Toussaint-Comeau, Hogarth, and Greene 2001). Such community-based institutional shortcomings may be accompanied by inadequate informal social networks, which are another important mechanism for transmitting information about a wide range of economic opportunities (Wilson 1996). Ironically, because low-income persons are more likely to have limited education or to have experienced school failure, they may be less likely to benefit from financial management training programs increasingly being offered through school systems. The job instability often encountered by this population, as well as its concentration in low-wage service sectors, also may limit the exposure of low-income persons to employee-based financial management programs. …