Poverty remains a huge problem for the governments. Looking for an effective policy which would cure this social “ailment” leads us usually to the discussion about the necessity of some financial education for the poor. It seems justified, as often these are those generally less educated people who find it hard to deal with financial matters.
People mostly judge you looking at how much you own, and frequently they have their ready judgments. If you have a little, you are probably some kind of an addict or just know nothing about finances. Thus, most of the “financially well-educated” wealthier part of society believe that poor people definitely need financial education. Why do people think the poor need it? There are some popular beliefs:
1. The poor spend money irresponsibly
Some of us may think in this way when asked about the main source of poverty. Maybe it is true, maybe we just do not look at spending money from a poor man’s point of view and we just assume things too quickly. The truth is that being poor does not mean you cannot buy sweets or other small treats for your family, or buy something, let us call it, “not necessary to survive”, if it is this “family thing” which in other, wealthier family could be a trip or other more expensive gift.
2. The poor waste money on their addictions
This is the next argument we often give, and actually, it is obviously true in many cases. However, firstly, not in ALL cases, and secondly, how can the financial education help poor people stop drinking alcohol or smoke heavily? It is very doubtful that this would help anybody in such a situation, just because the core of the problem is hidden somewhere else, not in the lack of the financial knowledge.
3. Poor people take too much credit
The truth is that having too much credit is the problem of not only the poor, we all are in the same danger. Whose fault is this that poor people are given the next credit in the situation when they have already lots of debt? Nowadays, there are plenty of credit options and they are for the asking. Aren’t the lenders and the lending companies’ marketing too aggressive and pushy? Maybe the financial education could solve one part of the problem, yet the responsibility lies on the both sides – borrowers and lenders.
4. Poor people do not use financial products because they do not know how
It is true that poor people tend to avoid making their money “electronic”. They do not seem to trust new technologies. Educating about formal financial possibilities they have and already know about ( but do not want to use), is not enough. It would be probably more effective to create the formal financial products which would be suitable for the poor’s money management mental models.
Adult financial education programs have not turned out to be very effective as for now. It is easy to create a program and at least “do something” to change the situation basing on common biases, but we need more desirable results and proof that it really works. Nevertheless, it is not senseless to implement some financial education help, but why not to start at the school education level?