OPINION: Financial literacy can’t fix socioeconomic inequality

Drawing of a person shaking a piggybank while they're being told to save money.
(Clare Martin • The Student Life)

When I was growing up, “rich” functioned as a catch-all term for anyone living in a suburban, upper-middle class home. Thirteen years of public school education equipped me with the skills I needed to succeed at Pitzer College. No extravagant tutors, million-dollar boarding schools or celebrity parents got me into a school where 70 percent of students come from the top 20 percent income bracket.

When people argue that financial literacy is the key to erasing socioeconomic inequality, the experiences of the millions of middle- to low-income households in America are inevitably erased.

From North Carolina’s state-mandated financial literacy classes to the Trump Administration’s Financial Literacy and Education Commission, mindsets putting the blame for inequality on poor people run rampant in the fabric of American society. Arguments for financial literacy education ignore the fundamental fact that poor people are already financially educated. Too many false assumptions about inequality distracts from the only way America can fix socioeconomic inequality: Give people more money and more opportunities.

Socioeconomic inequality cannot be explained through a lens of financial literacy. Doing so ignores fundamental facts about America’s economy that stagnates wealth for the poor while helping the few at the top hold an overwhelming majority of net worth. Similar to the “pulling yourself up by your bootstraps” myth, financial literacy advocates propose solutions that can’t fix America’s poor social welfare net, corporate lobbying, eroding unions, low minimum wage, massive student loan debt, unaffordable housing and systemic discrimination. Individuals are overwhelmingly not responsible for their income status. Family wealth and race are the strongest indicators of future financial success, not financial literacy. 

Studies show that financial education doesn’t improve financial well-being, and it doesn’t change financial behaviors. Financial literacy education only affected 0.1 percent of people’s financial behaviors in a meta-analysis covering 77 studies. In underprivileged groups — including students, migrants and low-income households — researchers found no long-term financial behavior change. Similar to how college students can’t suddenly author books after taking English classes or run a museum after taking AP U.S. History, financial literacy classes teach theory without realistic application.  

Even if lower-income households knew the ins and outs of interest rates, the housing market, for example, still would have crashed. An improved understanding of the stock market won’t help poor people who spend 80 percent of their income on necessities like housing and food; when 54 percent of people live paycheck-to-paycheck, a class on savings accounts can’t fix their problems. People’s finances are too volatile for financial literacy classes that assume fixed budgets, easy to understand wages and simple math are the norms in an actually far more unstable American economy. 

What has been proven to work time and time again, especially in light of measures taken during the COVID-19 pandemic, is directly giving people the monetary support they need. The first round of federal stimulus checks worth $1,200 demonstrates this perfectly: The monthly personal savings rate increased by around 20 percentage points after they were signed into law, and benefits from the March 2020 Coronavirus Aid, Relief, and Economic Security (CARES) Act raised average wage growth for the bottom 25 percent of workers by more than 20 percentage points. Meanwhile, the March 2021 American Rescue Plan’s expansion and increase of child tax credits is estimated to lift 4.1 million children out of poverty.

Outside of pandemic-driven policy, America needs dramatic reforms to reduce socioeconomic inequalities. Until we improve our taxation system, energize our unions, reform our campaign finance system and get rid of the notion that the poor are to blame for their financial situations, inequality will remain a permanent characteristic of America’s economy. 

Kenny Le PZ ’25 is from Anaheim, California. He’s a stressed first-year hoping to work in public policy.

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