We know why financial literacy is important: the core concepts – how to spend, save and borrow, how to invest and accumulate wealth – promote financial independence. But where we teach financial literacy is just as important as what we teach. We need to invest in education for youths in underserved communities to develop this skill set.
Financial literacy empowers communities. It will lead to food security, a stronger and educated workforce, which translates into a lower crime rate, fewer foreclosures in our neighborhoods, less stress in our lives and happier individuals and families. In financially capable communities, everyone benefits.
The pandemic and vulnerable populations
According to the U.S. Census Bureau, our national poverty rate declined from 2010 to 2019. Median household income also rose to $68,703 in 2019 from $64,324 in 2018, representing an increase of 6.8%. More good news: the 2019 real median incomes of family households and non-family households increased 7.3% and 6.2% from the year prior. In fact, all demographic groups in the nation, including white, Black, Asian, and Hispanic households, experienced increases in median household income.
Then, the pandemic put a stop to everything. The lockdown exposed the most vulnerable populations to the uneven economic recovery.
Financial literacy in the underserved communities must be a national priority. This country is built on important core values: justice, freedom, equality, democracy, and compassion. To that end, each and every one of us has an inherent responsibility to help the most in-need. Underserved communities have very little or no financial buffer to absorb the economic shock and will soon become a national crisis.
Let me use my local community, Miami-Dade County, to make a case.
About 13.51% of our families are regarded as below the poverty line while the national average is around 10.5%. It was estimated that five out of 10 households in Miami-Dade County are living in, or are one emergency away from, the poverty line. The unemployment rate in September 2020 jumped to 13% with 183,595 workers unemployed.
Breaking the cycle of poverty
Florida International University's Metropolitan Center estimates that 14.4% of our residents are living in households without food security. While the U.S. is the world's largest economy, the Standard & Poor's Global Financial Literacy Survey ranks our country No. 14 when measuring the proportion of adults in the country who are financially literate. To put that into perspective: the U.S. adult financial literacy level, at 57%, is only slightly higher than that of Botswana, whose economy is 1,127 percent smaller. In the same report, it estimated only 4% of children from low-income families will break the cycle of poverty and break into the upper-middle class.
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Typical financial literacy programs for low- and moderate-income families include tax preparation assistance, financial coaching on how to manage credit, home purchasing advice, and resources for the unbanked population.
Education and awareness are at the core of helping our underserved communities to make smart and effective financial decisions as well as protecting their consumer rights and not falling for predatory lenders. Obviously, there are many ways to lift a community. I believe educating high school students and their parents presents a good grassroots opportunity.
For example, Pell Grant applicants and many first-generation college students are from underserved communities. During the lockdown, one or both parents might have lost their jobs. One parent might be forced to stay home because of school closings. Single-parent households might face even more severe economic hardship. Teenagers who used to provide some financial support to the family might no longer be needed in their part-time jobs.
For some high school graduating seniors, going to college now seems impossible not only because of strained finance resources but also the lack of parental support or guidance in dire economic times. New data from the National Student Clearinghouse Research Center indicates the number of first-time freshmen declined by 13 percent from the year before, with sharp drops among first-time Black, Hispanic and Native American students in particular. There will be no gap year for these students but a permanent loss of potential income from a four-year degree. The impact of the lockdown affects these families disproportionately as the vicious cycle of poverty goes on.
Instilling financial literacy should start early. Education level is highly correlated with financial literacy. First, we must leverage partnerships in the community and articulate well-defined priorities. Government leaders, universities, local economic development councils, community and business leaders, and representative stakeholders such as young professionals and retirees must work together to bring awareness to the community and commit to a shared purpose of increasing financial literacy among underserved families. For instance, Education Fund, a private sector leadership effort to support public education in Miami, runs a SmartPath program to prepare students for college through initiatives such as the FAFSA marathon workshops.
While financial literacy may represent one objective of a community's economic development, I argue it is the most important piece of the puzzle. As such, I believe legislature and leaders from both the private and public sectors must work together to prioritize financial literacy. In Miami, our Beacon Council is leading a community-wide strategic planning initiative, One Community One Goal, to advance economic sustainability through education.
While many have advocated a mandate to teach personal finance as early as in high school, I will go one step further to require continuous training in college to reinforce good decision-making as students face many life-changing events. I consider this issue personal because I am one of the 4% that made it out of the poverty cycle.
As an old Chinese proverb says, "education breeds confidence and confidence breeds hope."
—By Joanne Li, dean, professor of finance and Ryder Eminent Scholar Chair at Florida International University College of Business and a member of the CNBC Financial Wellness Council.
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Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.