• The role of financial literacy
    May 16,2014

    It is great that the Center for Financial Literacy is convening a financial literacy task force. Financial literacy is a critical issue. We at Central Vermont Community Action Council have been working on financial literacy for adults for the last 17 years. Our hope is that the task force will not just highlight the importance of financial literacy for teenagers and adults, but also move beyond financial literacy to promoting financial capability, encouraging behavior change as well as increasing knowledge.

    Our individual development account program, Tangible Assets, has been a successful way of operationalizing financial literacy and making it “real” for adults in central Vermont and statewide.

    Through the IDA program, we teach Vermonters the basics of financial literacy — tracking spending, working with financial institutions, how to identify savings opportunities, values and goal-setting, insurance, retirement, credit cards and credit building — and provide opportunities and incentives for saving through local financial institutions.

    With this successful program, people are able to put their newfound financial knowledge to work. To date, in central Vermont we have worked with more than 500 low-income Vermonters to save nearly $470,000 and to invest nearly $1 million in businesses, post-secondary or vocational education, or their first home. These statistics have been mirrored across Vermont through support from the Legislature.

    What does this have to do with financial literacy? It is difficult to save if you don’t have the financial literacy tools and skills. Your personal dreams can become limited by your present reality. What you know can temper your own ability to change your circumstances. Banking, insurance and policy structures can limit or even stop a person from making positive financial changes. Financial disruptions (emergencies) are often the precursors to people needing assistance and seeking help with financial matters.

    A recent study by Brandeis University’s Institute for Assets and Social Policy in its Leveraging Mobility Series followed 148 individuals and families and found that financial disruptions occur more frequently to lower-income people than those higher up on the ladder and savings either by individuals or through the wealth of extended family members provide a bridge to help people get through financial disruptions.

    Financial disruptions happen more often because those at the lower end of the economic spectrum tend to have less education and less mobility, and have accumulated less savings to get them through the consequences of these disruptions and emerge successfully on the other side.

    Financial disruptions like illness or layoffs are more likely to alter their lives dramatically and too often set them back catastrophically, and perhaps permanently, destroying their dreams of moving up the economic ladder.

    True, there are those who don’t plan ahead. There are those who, because of institutional barriers, can’t plan ahead and don’t have the tools to plan ahead. In his recent column in The Times Argus, George Malek seems to be saying that the social safety net has created a dependence on it. There’s an expression to keep in mind when contemplating his opinion: “There but for the grace of God go I.”

    Are we a society that would hang people out to dry because they haven’t been able to plan ahead? Are we willing to punish people and make it impossible for them to recover from disruptions, like the loss of a job, illness or family breakup?

    Should their children not have an opportunity to go to college and improve their lot in life? Should the family go hungry? Become homeless?

    We need to move beyond financial literacy to financial capability. Move beyond just providing knowledge to creating tools that help people move permanently out of poverty. We know from our experience that financial literacy plus access and policy tools can help people save and build assets and make permanent changes in their lives.

    Mary R. Niebling is director of Community Economic Development at Central Vermont Community Action Council in Barre.

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