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Targeting financial management training at low-income audiences.

While interest in financial management training programs for low-income persons has grown in recent years, the specific training needs of low-income consumers have not been well articulated. This article describes needed training content for such audiences, based on review of previous research and the authors' experiences in evaluating the Financial Links for Low-Income People (FLLIP) program. We also illustrate how the choice of financial management training models can seriously impact the subgroups of the low-income population who attend training, as well as the success of programs in recruiting and graduating participants. The implications of these findings both for financial management curriculum development and for the selection of program models are presented.


As financial management training programs have proliferated, a second largely unrelated public policy stream has changed the systems of income and support services available to low-income persons. State-operated Temporary Assistance for Needy Families (TANF) programs have established strict work requirements and lifetime time limits on welfare receipt. These welfare system changes have been accompanied by growth in public supports for working low-income persons, such as expansion of the Earned Income Tax Credit (EITC), child care subsidies, and Children's Health Insurance Programs (CHIP). Large reductions in welfare caseloads subsequently have occurred, but studies have found that those who leave TANF typically do not escape poverty (Anderson and Gryzlak 2002; Loprest 2001). Helping current and former welfare recipients to maximize the use of limited financial resources consequently is critical to their economic well-being.

The need for improved financial education extends beyond the segment of the low-income population affected by welfare reforms. Wealth inequality in the United States is much more pervasive than income inequality, leaving low-income persons vulnerable when financial crises arise (Oliver and Shapiro 1995; Wolff 1995). Analyses of the 1998 Survey of Consumer Finances indicate that households with incomes of less than $10,000 had median net worth of $3,950, as compared to $24,650 for households with $10,000-24,999 in income and $152,100 for households with $50,000-99,999 in income (Montalto 2002). Further, the net worth of low-income households actually declined during the prosperous 1995-1998 period (Montalto 2002).

Many low-income persons appear ill-prepared to respond well to these precarious economic circumstances. General consumer surveys have found that low-income persons are less likely than those with higher incomes to be financially educated (Bernheim 1998; Brobeck 2002; Consumer Federation of America 1990). The limited access many low-income persons have to financial and community institutions may exacerbate these deficiencies. For example, poor communities often suffer from a lack of banks or other financial institutions (Avery, Bostic, Calem, and Canner 1997). This not only limits the experiential learning that occurs when persons use mainstream financial services, but also creates susceptibility to predatory financial practices in many low-income neighborhoods (Rhine, Toussaint-Comeau, Hogarth, and Greene 2001). Such community-based institutional shortcomings may be accompanied by inadequate informal social networks, which are another important mechanism for transmitting information about a wide range of economic opportunities (Wilson 1996).

Ironically, because low-income persons are more likely to have limited education or to have experienced school failure, they may be less likely to benefit from financial management training programs increasingly being offered through school systems. The job instability often encountered by this population, as well as its concentration in low-wage service sectors, also may limit the exposure of low-income persons to employee-based financial management programs.


Issues such as these have generated growing interest in strategies to improve the financial management capabilities of low-income persons. However, training programs to date have been developed piecemeal, are poorly coordinated, and have not reflected a consistent vision about low-income consumer needs (Brobeck 2002). It therefore is important to more clearly define financial management issues that may be of particular concern to low-income audiences.

While there have been no large-scale assessments specifically targeted on ascertaining low-income financial education needs (Brobeck 2002), program and research experience has generated information on several knowledge areas of importance to low-income consumers. One of these involves knowledge about existing public benefits. Because low-income persons have such limited resources, public supports are especially important in determining their financial well-being. Yet, several studies have found that income-targeted benefits such as the EITC, child care subsidies, food stamps, and Medicaid are underused, in part due to lack of knowledge (Anderson 2002; Ellwood 1999). This suggests a need to develop training curricula that specifically addresses both eligibility rules and the procedures for accessing public benefits.

Previous studies also have found that low-income persons are less likely to have bank accounts than those with higher incomes, and thus may lack knowledge about basic banking practices. For example, in 1995, about 85% of unbanked households had incomes of less than $25,000 (Jacob, Hudson, and Bush 2000). While survey results indicate that lack of money is a primary reason for not having a bank account (Caskey 2000), households without accounts also may overestimate the cost of owning an account or underestimate the costs of using alternative financial services such as check cashing exchanges or pawn brokers (Hogarth and Lee 2000).

Low-income persons also are especially susceptible to predatory lending practices. Low-income status is highly correlated with limited education, and many persons with poor educations lack the mathematical skills needed to make or understand percentage calculations related to loans. For example, research has demonstrated that consumers with low incomes and poor educations are least likely to make use of the annual percentage rate (APR), which is critical in comparing lending costs (Brobeck 2002). When coupled with lack of access to mainstream financial institutions, this leaves low-income persons as primary candidates for growing predatory practices such as refund anticipation loans and payday loans, which often carry triple digit annual percentage rates (Consumer Federation of America and National Consumer Law Center 2002; Fox 1999). Studies have found that low-income persons are aggressively solicited to use such predatory practices over the phone, through direct mail, and door-to-door (Jacob, Hudson, and Bush 2000).

In addition, more traditional credit was increasingly marketed toward low-income consumers during the 1990's, which led to rising credit card debt (Brobeck 2002). By 1995, 57% of households with incomes below 150% of the poverty level had at least one credit card (Bird, Hagstrom, and Wild 1999). Low-income households are more likely than higher income households to have high credit card debt to income ratios (Bird, Hagstrom, and Wild 1999), which suggests the importance of low-income consumers understanding and carefully comparing credit card costs and benefits.

Finally, low-income consumers are much less likely to save and invest than higher income consumers (Princeton Research Associates 2002; Sherraden 1991). While this partially is an obvious consequence of lower available incomes, low-income persons also may misunderstand how relatively small amounts of monthly savings can accumulate through compounding of interest over time. Low-income households also are much less likely to prepare financial plans and budgets than higher income households, which may contribute to lack of savings (Princeton Research Associates 2000).


As assessments of the financial information needs of low-income populations continue to be refined, the potential effects of different training approaches also require attention. Many financial management training programs have reported gains in knowledge or desired financial behaviors by participants (DeVaney, Gorham, Bechman, and Haldeman 1996; Hirad and Zorn 2001; Hogarth and Swanson 1995; Shelton and Hill 1995; Sherraden, Page-Adams, and Johnson 1999; Schreiner et al. 2001). However, measurement approaches and sample sizes vary dramatically in these studies, and there have been no published studies that compare different program approaches or outcomes. Neither has there been research that compares the characteristics of participants who attend different financial management programs, or that examines how program recruiting strategies may affect such participation.

One important variation in program approaches concerns whether participation incentives are included. For example, Individual Development Account (IDA) programs couple financial management training with matched savings accounts to be used for specified purposes such as a first-time home purchase or educational expenses (Sherraden 1991; Sherraden, Page-Adams, and Johnson 1999). In comparison, other programs focus solely on financial knowledge development, and include at most limited participation incentives.

Findings from our evaluation of eight program sites of the Financial Links for Low-Income People (FLLIP) financial management training program illustrate the powerful effects these different training approaches may have on participant recruitment and retention. FLLIP provides 12 hours of financial management training for persons with incomes below 200% of the poverty level. The training is provided through contracts with non-profit community agencies, which also are responsible for recruiting all program participants. A common core curriculum, which was developed in response to previously identified low-income consumer needs, is used at all program sites (Chan et al. 1997; Chan et al. 2001).

FLLIP is unique in that it is utilizing either IDA or financial education-only program approaches at different sites. At the financial education-only sites, participants receive few if any tangible participation incentives. At the IDA sites, the training is accompanied by IDA accounts that provide up to $2 in matched savings for every $1 the participant saves, up to a maximum of $2,000 in program matching funds. Persons at these IDA sites must complete the training in order to receive the matched savings account.

We administered a pre-training knowledge test to FLLIP participants during orientation sessions at the eight program sites between September 2001 and July 2002. The test was designed to measure basic knowledge about content to be covered in the program's core training curricula. It includes 48 true-false and multiple choice items, with subsets of questions on five content areas: predatory lending practices; public and work-related benefits; banking practices; savings and investing strategies; and credit use and interest rates. (1)

In addition, we conducted qualitative interviews with 20 program managers, recruiters, and trainers at the eight sites, as well as eight structured training session observations. These activities were intended to gain field perspectives both on best practices and implementation difficulties. Program sites also provided participant applications that allowed us to develop data on the characteristics of persons who attended these two program types.


Few previous studies have reported on pre-training financial knowledge levels among training participants, which raises the question of whether the financial education needs attributed to the low-income population are applicable to those who actually attend training. Low knowledge levels were the norm for persons entering FLLIP, as the 298 participants studied answered only 63.4% of the 48-item test correctly. Given that most test questions were true-false and were designed to assess only basic knowledge, these results indicate very low average knowledge levels among these training participants.

There were notable knowledge deficiencies in each of the five content areas, but FLLIP participants had especially poor knowledge about public and work-related benefits and about savings and investing (average correct responses of 57.9% and 56.1%, respectively, for these question subsets). The knowledge deficiencies about public and work-related benefits indicate that many participants were unaware of benefits for which they were eligible. For example, questions in this category tested basic knowledge about transitional Medicaid, subsidized child care, and the Earned Income Tax Credit (EITC).

The knowledge deficiencies extended to both IDA and education-only program participants. However, IDA participants had significantly higher average knowledge levels than education-only participants, both overall and in each of the five content areas (average total correct responses of 69.4% for IDA participants versus 57.9% for education-only participants). For both groups, the lowest average percentages of correct scores were found for knowledge about savings and investing and public and work-related benefits.


Data on FLLIP participant characteristics reveal that participants who enter IDA and education-only sites differ in interesting ways, which may partially explain the knowledge variations found at these two types of sites. IDA participants are much more likely to be employed than education-only participants (97.8% versus 13.2%), partially because participant savings for the IDA must be from earnings. Correspondingly, IDA participants are much less likely to be TANF recipients (1.5% versus 69.1%). IDA participants also are far more likely to have checking accounts (75.6% versus 22.8%) and savings accounts (62.2% versus 16.2%). In addition, IDA site participants are significantly more likely to be better educated, older, and married.

Given that each FLLIP site has discretion in recruiting as long as participants have incomes of 200% or less of the poverty level, one may wonder why the differences in characteristics are so great at these two types of sites. Our qualitative interviews with program managers and recruiters provide insights in this respect. Staff at IDA sites stressed the need to recruit persons with reasonable prospects of saving, so that participants were likely to earn the matching IDA funds. This naturally led recruiters to seek more stably employed individuals, and to be reluctant to recruit persons receiving TANE In comparison, recruiters and managers at education-only sites had no tangible incentives to offer, and consequently often experienced difficulties in recruiting participants. However, TANF offices agreed to let recipients count FLLIP training toward their required TANF work activity requirements. This essentially provided a different type of incentive for participation, and led most education-only sites to focus recruiting efforts on TANF offices.

These differences point to a broader recruiting point suggested by our FLLIP staff interviews. That is, despite initiating the financial management programs with considerable enthusiasm and high expectations, staff found recruiting and retention of participants to be difficult. This was especially true at the education-only sites, and often was attributed to the lack of tangible incentives for participation. Even when recruitment was successful, drop-out rates at the education-only sites averaged about 40%, as opposed to 11% at the IDA sites. In explaining these high drop-out rates, trainers mentioned problems such as transportation issues, sporadic work schedules, and child care issues, which were especially troubling for low-income participants who received TANF.


Both previous research and our FLLIP study suggest the broad parameters of financial management training that may be useful with low-income audiences. In general, content on public and work-related benefits and predatory lending practices are particularly important, and therefore may require special curriculum development. For example, because many public benefits for low-income persons vary by state and local jurisdictions, agencies developing training programs must learn about applicable benefits and eligibility rules in their locales. Training content on banking practices, budgeting, credit card use, and savings and investing also is needed and may parallel that offered to other audiences. However, presenting such material at a basic level is advisable with most low-income groups. This may be especially true in areas such as savings and investing, as low-income persons often have little experience with these activities and the participants in our study displayed clear knowledge deficiencies.

When developing training exercises and examples in any content area, program managers and trainers must be sensitive to the resources typically available to low-income households. Otherwise, content based on middle or higher income experiences will appear unrealistic. Fortunately, a growing body of financial management materials targeted to low-income audiences has become available to ease the task of developing relevant training exercises (see, for example, Chan et al. 1997; Chan et al. 2001; Federal Deposit Insurance Corporation 2001).

While the training topics described above will be relevant, tailoring training to specific low-income audiences is necessary. As our FLLIP data illustrate, low-income audiences can be quite diverse, so assessment of training needs at the beginning of sessions is advisable. Pre-training tests such as we developed for FLLIP are one viable strategy in this respect. Using initial training sessions to discuss priorities for training with participants is another possibility. Such open-ended discussions also may convey a sense of empowerment to training participants, which may ease uncertainties with training borne of past classroom difficulties.

Our FLLIP implementation research suggests that, even if a solid training curriculum is developed, recruiting for and graduating participants from low-income financial management training is challenging. Often faced with a history of school failure, as well as practical barriers to participation such as fluctuating work schedules and child care problems, many potential training beneficiaries may be reluctant to participate. Agencies entering this program arena therefore should expect to devote substantial resources to recruiting and retention efforts.

Developing participation incentives is one important avenue for facilitating recruitment and retention. The provision of fairly large incentives, such as those offered by IDAs, is likely both to attract participants and to encourage program completion. However, raising funds for the matched savings accounts may require substantial staff effort. In addition, because of the need to recruit participants that have reasonable savings prospects, these programs may not focus on low-income persons with the most basic financial education needs.

Education-only programs provide different challenges. While generally less expensive to operate, the lack of tangible incentives typically offered is likely to heighten recruiting and retention problems. This suggests the need for strategies to create at least limited participation incentives in these programs. Working with TANF offices to establish work and training credits for participation is one example in this respect. Interviews with FLLIP staff also indicated that education-only sites increasingly were experimenting with tangible incentives, such as tying completion of the training to opening bank accounts or providing graduates with calculators or other small inducements. Even the provision of certificates of completion, coupled with small graduation ceremonies when training is completed, was viewed as a meaningful incentive by FLLIP trainers. Further experimentation with participation incentives, perhaps including small cash payments or shopping certificates for training completion, may be a useful programmatic compromise between the often large investments required for IDA programs and the lack of incentives in many education-only programs.

One additional participation incentive involves the provision of practical assistance to program participants. For example, in FLLIP, TANF participants are provided with transportation and child care vouchers if needed to assure participation. Follow-up calls with participants who do not show up for training also are required, in order to determine if barriers to completing training have arisen. Supportive efforts such as these not only may encourage program participation, but also may reduce program drop-out rates.

The meaningful expansion of financial management programs targeted at low-income audiences is only likely to occur with the assistance of more consistent public support. While governmental assistance for IDA development has been provided through the Assets for Independence Act of 1998, funding support for other financial management training approaches is needed. Because of the importance of financial knowledge to TANF recipients, approaching state TANF agencies with program ideas is one useful approach. The FLLIP program, for example, is funded partially with TANF funds. In addition, many university extension services already provide financial management training, so engaging these agencies in programming targeted at low-income consumers is consistent with existing service missions. The use of community adult education funding and facilities for this purpose also merits experimentation.

Finally, the findings point to several areas in which research could contribute to the refinement of financial management training for low-income audiences. As previously noted, there is little information available regarding which program models may be most effective. It would be useful to determine whether IDA accounts or other participation incentives lead to greater improvements in financial management practices than occur in programs that do not incorporate incentives. The extent to which background characteristics or beginning knowledge levels of participants are associated with knowledge gains or changes in financial practices also is unknown. Answers to these and other research questions will be important in shaping and refining programmatic efforts that offer considerable promise for low-income consumers.


(1.) The 48-item knowledge test, as well as analysis of knowledge patterns among program participants, is available in a program report on FLLIP (Anderson, Scott, and Zhan 2002).


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Steven G. Anderson is an Assistant Professor in the School of Social Work, University of Illinois at Urbana-Champaign ( Min Zhan is an Assistant Professor in the School of Social Work, University of Illinois at Urbana-Champaign. Jeff Scott is a Research Assistant in the School of Social Work, University of Illinois at Urbana-Champaign.
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Title Annotation:Bits, Briefs, And Applications
Author:Anderson, Steven G.; Zhan, Min; Scott, Jeff
Publication:Journal of Consumer Affairs
Geographic Code:1USA
Date:Jun 22, 2004
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