Publication year
2019
Citation Title
Racial differences in returns to financial literacy education.
Journal Name
The Journal of Consumer Affairs
Journal Volume
53
Issue Number
2
Page Numbers
572-599
DOI
10.1111/joca.12205
Summary
The racial wealth gap has garnered attention in the past several years and it can be partly attributed to a lack of financial knowledge. This study examined the racial differences in financial literacy and learning outcomes from financial education. Results show that benefits of participation in financial literacy education vary by race.
Key Findings
White participants scored higher on financial literacy knowledge than participants who identified as racial minorities.
Participation in financial education increased financial literacy, but White participants reported better financial literacy scores than participants who identified as racial minorities.
The income, age, and education of participants was positively related to financial literacy.
Males have higher financial literacy than females.
Implications for Military Professionals
Collaborate with others to identify ways that engage racial minority participants in financial literacy education
Attend trainings about systemic bias to increase their knowledge and skills in a manner that provides racial minority participants with meaningful learning experiences
Implications for Program Leaders
Develop curricula that take into account the demographics (e.g., race, gender, income level) of the participants being served
Develop strategies to reduce attrition rates among racial minority participants in financial literacy programs
Implications for Policy Makers
Encourage the development of programs that reduces systemic bias and takes participants’ demographic characteristics into consideration, such as income and education level, in financial literacy curriculums
Promote evaluation of the effectiveness of programs aimed at increasing financial literacy specifically for racial minority participants
Methods
Data were collected from the 2015 National Financial Capabilities Study.
Participants were asked financial literacy questions that examined the relationships between bonds and interest rates, compound interest, diversification, real rates of return, and loan maturity, as well as access to and intensity of financial literacy education.
Data from the White and racial minority samples were compared to examine differences in the financial literacy between the two groups.
Participants
Participants were relatively equally divided in terms of gender.
There were equal number of participants in each age group that ranges from 18 to 65 years and older.
Majority of racial minority participants were in the age group of 25-34 years, while the majority of White participants were above 65 years old.
No information was provided on the racial identity of the racial minority participants or the exact number of participants
Limitations
Racial minorities in the sample were considered as one group, which overlooked the racial diversity in financial literacy among different racial groups.
The data were cross-sectional, which does not allow for interpretations of causal relationships.
Financial education was not fully examined in the study (e.g., lack of measures on the quality of financial education); therefore, it may have unintentionally influenced the results of the study.
The age differences in this study must be considered.
Avenues for Future Research
Examine the differences in financial literacy between different racial groups and how each racial group compares to Whites in financial literacy scores
Explore the contribution of other variables (e.g., socioeconomic status, education level, etc.) to the unexplained difference in financial literacy between Whites and racial minorities
Analyze the role of attrition rate on the relationship between financial education and financial literacy in racial minorities
Focus
Civilian
Target Population
Population Focus
Abstract
We examine financial literacy and the returns to financial literacy education, specifically focusing on the racial financial literacy gap. We confirm evidence that whites have higher financial literacy scores relative to minorities and that financial literacy increases with participation in financial literacy education. However, we find the benefit of participation in financial literacy education is higher for whites than that for minorities. Thus, the impact of being white along persists, indicating a racial financial literacy and/or behavioral difference despite financial literacy education. Our findings have implications for policymakers interested in narrowing the racial wealth gap via financial literacy education.
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