There are many different opinions and perspectives on poverty in today’s economy. Many newspapers and news anchors tell the story, but no one seems to be offering a solution. In Congress, our friends on the left side of the aisle seem to be blaming corporate greed and lack of opportunities. Their counterparts on the right side of the aisle would probably say that the poor are in poverty because they simply “don’t work hard enough” and need to “pull themselves up by their bootstraps” in order to escape poverty. I’d have to point to another source of this problem altogether: ignorance of financial literacy. I say ignorance not to be offensive, but because many people in poverty truly have no idea of the information out there that can make them financially stable and obtain it.
According to investopedia, financial literacy is defined as “The knowledge of properly making decisions pertaining to certain personal finance areas like real estate, insurance, investing, saving, tax planning and retirement. It also involves intimate knowledge of financial concepts like compound interest, financial planning, the mechanics of a credit card, advantageous savings methods, consumer rights, time value of money, etc.” That being said, financial literacy doesn’t make the poor extremely rich, but I do believe it can make bring some of the poor into the middle class, and some of the middle class into the upper class. The most important skill in being financially literate is being able to discern long-term impacts on financial decisions in the present. Being financially literate has two parts. First, a very basic level understanding time value of money. This means knowing that a dollar now is worth more than a dollar in the future because one can earn interest. Further, although somewhat more complex, an element of planning and anticipation with respect to making financial decisions.
People in poverty have financial habits that can be adverse and destructive to one’s financial health. Overall consumer confidence in banks is very widespread. This is especially true for Americans in poverty. People in poverty are far more likely to not have bank accounts and/or not use banks at all because of this level of distrust. This is particularly detrimental because the easiest way to earn a return on money is probably to place it in the stock market, but even money sitting in a bank account earns interest. People in poverty are also likely to utilize payday loans, places that charge extraordinary fees just to cash checks or give out loans at extraordinarily high interest rates. The high cost of financing car loans, and rent to own furniture can potentially be avoided if those in poverty become more financially savvy and learn how to better take care of themselves financially.
I recognize that as far as this recommendation is concerned, this advice may not help everyone equally but I do think that it will greatly assist many people who are currently in poverty who can actively learn to be financially literate and obtain financial stability, but the first step starts with information.
-JB
¡The Rise! 