CHAMPAIGN, Ill. - Personal finance education is a growing trend in schools and workplaces, but it misses many of those who need it most, say social work professors Steve Anderson and Min Zhan.
The poor not only have less money, but often lack access to banks, work-based investment opportunities, and information about government programs designed to assist them. They're also more vulnerable to predatory lenders charging exorbitant rates and fees.
But a well-designed financial training program for those with low-incomes can help them avoid harmful behaviors and "getting ripped off," and improve their financial decision-making, say Anderson and Zhan, professors at the University of Illinois at Urbana-Champaign.
They base that conclusion on a two-year study of a program offered by Financial Links for Low-Income People (FLLIP), using a curriculum developed by University of Illinois Extension. Their study looked at the results of FLLIP training at 16 sites in a mix of Chicago, suburban and downstate Illinois locations, with 1,198 participants entering the program and 822 completing it.
"In light of the hard-to-serve training audience reached by FLLIP, the knowledge gains and reported behavior changes of participants are encouraging, and suggest solid potential for both the FLIIP training approach and the curriculum," wrote Anderson, Zhan and doctoral student Jeff Scott in their final report on the study, submitted in June.
An article about their study was published in the summer issue of the Journal of Consumer Affairs.
FLLIP is coordinated by the Sargent Shriver National Center on Poverty Law, based in Chicago. Funding for the study was provided through a grant from the Illinois Department of Human Services (IDHS), which also funded much of the training at the sites studied.
FLLIP also has conducted training at other sites throughout the state, and has received funding from several private foundations.
The need is there for FLLIP and similar programs because even though many have left the welfare rolls in recent years, "studies have found that (they) typically do not escape poverty," the researchers said in the journal article. To improve their chances,
low-income families need help in managing their limited resources, and in avoiding the predatory lending practices common in many poor communities, they said.
Participation in the training program was limited to those with incomes below twice the federal poverty level, although the median monthly income of those who signed up was only $800, and three-fifths were unemployed when they entered training. Only a quarter had a savings account, and only four out of 10 had a checking account.
Similar training programs have been developed and studied in other states, Anderson said. The FLLIP program, however, incorporated several features that allowed researchers to study which incentives worked best for recruiting participants and encouraging them to complete the training. Three of the sites offered individual development accounts (IDAs), which provided a two-for-one funding match to individuals who saved for specific purposes such as home repairs or education. The other sites provided only the training, with no financial incentives for participating.
"To the best of our knowledge, this is the only study so far that's made any comparisons between those two models, each of which is growing in use," Anderson said.
In addition, FLLIP officials worked out an arrangement with IDHS so that people in the Temporary Assistance for Needy Families (TANF) program would receive work credit for attending the 12 hours of training. The state also paid for their transportation and child care. As a result, about a quarter of those entering the training were TANF
recipients - a high percentage, according to Anderson.
The study also appears to be the first to test participants' financial knowledge before they started, as well as at the end of training, Zhan said. Most previous research "just assumed that they knew little about financial matters" before the training, she said.
The tests and training concentrated in five content areas: predatory lending practices; public and work-related benefits; banking practices; saving and investing strategies; and credit use and interest rates.
The test before the training at each site showed that participants' knowledge in these areas was, in fact, "strikingly low," Anderson said. That, on its own, "supports the potential usefulness of the program," he said.
"One thing that stood out was that people didn't understand the public benefits very well," Anderson said, which is something he has found in previous research. Many were not aware of their eligibility for certain benefits, among them the earned-income tax credit, child-care subsidies and transitional Medicaid. Since many of these benefits were set up as part of welfare reform to support those who want to work, the finding is cause for serious concern, he said.
In post-training tests conducted with 287 of the 822 graduates, the researchers found "statistically significant knowledge improvements" in all five content areas. In a follow-up survey of 159 of the graduates, more than 80 percent of respondents said they did a better job of tracking their expenses and had changed their household budgeting practices.
Of those who previously did not have bank accounts, about a third reported opening a checking account and about a third a savings account. Over half of the respondents said they used currency exchanges less, and 40 percent said they took out fewer payday loans. About a third said they had started receiving or had applied for government benefits they learned about in FLLIP training.
Just getting people into the training, and keeping them from dropping out, was a challenge, Anderson said. "I think if FLLIP had one shortcoming initially, they underestimated the difficulty, in the absence of incentives, in getting people to come and finish programs like this.
You're bringing in a lot of people with both tough lives and, in many cases, past classroom failures," he said. Those with jobs are often juggling family responsibilities with odd or difficult schedules, he added.
At the training-only sites - those that did not offer individual development accounts - the dropout rate was 35.1 percent, versus 12.4 percent at the IDA sites. This reflected not only the incentive value of the IDAs, according to the researchers, but higher levels of education and income among the participants at those sites. One partial explanation for those higher levels, they said, was the incentive for program coordinators to find participants who would be successful in saving money and thus earning the matching funds.
The researchers suggested in their report that future non-IDA training models needed to offer more-tangible incentives for people to stay in the program.
Though advocating for more financial training programs, Anderson added that training should not be perceived as a substitute for other policies or programs aiding those with low incomes. "Basically, the underlying dynamics of their economic situations are not good," he said. "These programs should not be seen as substitutes for good employment or income-support policies."
