I would kindly like to ask for your feedback on this rough draft. This is my first time using essay forum.
The paper is intended to be 10 pages in length, but it is about 12 excluding title page and works cited.
Research on Fake News in Financial Literacy
Professor Alexis LaDuca
02 NOV 2017
Fake News in Financial Literacy
Financial literacy for members of a society is a very individualized event. Many roads lead to the same destination, but some do not lead to this target at all. Education programs are failing the illiterate adult population, and young adults are not receiving a financial education that prepares them for adulthood and the capacity to deal with economic matters. Resources for ineffective programs continue to be provisioned, and research shows that most financial literacy happens outside of education programs specifically designed to address the issue. What has been found to work is consistently ignored, leaving individuals who are illiterate to figure out what it means to know how to handle financial matters themselves. If an education cannot produce financially literate adults, then a new strategy is necessary that is tailored to address the problem accurately. Although we possess the resources, we have not adjusted the process, and financially illiterate adults miss the development necessary to eliminate the problem. This paper will illustrate that financial education lacks genuine interest because of neglected research, biased financial literacy programs, and lack of a tailored approach.
Socialization as it relates to financial literacy has not been thoroughly considered in financial education programs. For those that are literate, it's safe to assume that this socialization did occur somewhere, but others are not as fortunate and do not receive the equivalent through programs that aim to develop financially literate adults. Essentially, the environments of some that are illiterate are not places where knowledge can be acquired indirectly. When they turn to financial literacy programs, however, some things may stick, but other topics fail to do so. According to Geert Van Campenhout, Associate Professor of Finance at KV Leuven, one of those socialization agents - parents, for example, have not been considered enough based on studies that show what a difference parental involvement can have. "It's mostly been neglected in the design of financial literacy programs and the issues related to the evaluation of the effectiveness of existing programs" (Van Campenhout). Unfortunately, research is not currently used for its capacity to initiate change, which leaves ineffective solutions that can contribute to an unresolved problem. Curriculum designed to address this problem may fail if not designed to tackle illiteracy in financial matters, but with a pedagogy followed, there may be an overconfidence in its effectiveness. A significant overhaul may one day be necessary to include socialization agents as part of the curriculum. Professor Van Campenhout agrees that there are things left out of the equation. "Most programs focus on teacher-student relationships and neglect the network of other financial socialization agents" (Van Campenhout). This neglect leaves "money on the table" when it comes to making progress with the financially illiterate in our nation, and suggests that these agents have existed for a very long time.
Published literature also continues to neglect the diverse issues surrounding financial literacy and the best practices to address the problem. Seemingly, there are more things wrong with the direction that financial literacy is heading, but this may not be entirely accurate. Differences in upbringing, class, race, and living environments contribute to competing priorities in people's lives. These same factors influence preferences placed on financial literacy and how it fits - or does not meet - into someone's life as well. It is different for everyone, and for generations, it can be a blessing or a curse. Those with inherited wealth receive more than the financial endowment, but also the socialization agents that go with the territory. Dr. Clinton Gudmonson, Assistant Professor in Human Development and Family Studies at Iowa State University, observed that much of financial literacy ignores the why behind it. "Financial literacy research of the past forty years ... has largely ignored the reasons for sociodemographic differences in financial outcomes" (Gudmonson). These differences possess some of the keys to financial literacy in those that are illiterate but have not been a primary concern. Socialization agents that contribute to financial literacy have roots in the sociodemographics of individuals and can influence the presence or absence of information that is acquired indirectly. The research translated does not seek to address variables that influence outcomes, and apparently are not important to those that conduct the research. Ineffective programs then fail to possess the insight necessary to tackle the problem, and we continue with a perpetual cycle of financially illiterate adults who don't understand what needs to happen in their financial lives. Some that are literate learn from their parents, even with the array of sociodemographic concerns that influence learning, but our curriculums for others leave this and other factors out. People are then left to fend for themselves, with incomplete programs that cannot produce lasting solutions. According to Professor Gudmonson, "continuing to ignore family socialization processes is like attempting to tie one's shoelace with only one hand-an essential element is missing" (Gudmonson). The process of educating individuals on financial literacy should not be missing parts of the problem that can make people whole again. Financial literacy is a foreign concept to some, but ignoring the factors that contribute to it disadvantages those who are looking for solutions from those who purport to have the answers.
These disadvantages are apparent in the observations made in financial literacy programs today. The curriculum taught is not producing satisfactory outcomes for young adults, and therefore not preparing them with the mindset that financial literacy requires. Research on the effectiveness of financial education has found that it is ineffective in producing financially literate adults. Thomas Billiterri, a CQ researcher staff writer, made these observations in an article published on financial literacy and observed viewpoints on how best to solve the problem. According to Billiterri, "High-school seniors correctly answer only about half the questions on personal-finance surveys, and those who take personal-finance courses tend to score no better than those who don't" (Billiterri). The outcomes of these courses likely have not been seriously considered, but yet continue to be taught as an ineffective solution, wasting both resources and time. There are others that also agree with this assessment, and research indicates that this is not a new problem. In an article about the impact of financial education, Joseph Farinella and others have observed how the curriculum taught to students does not address what it means to be literate in financial matters, and there appears to be little concern that the same curriculum is repeatedly taught, yielding the same results. According to Farinella et al., "Students who have taken a semester-length course in money management or personal finance are not more financially literate than those who were not given the education" (Farinella). The observations that financial literacy is lacking are not incorrect in their assessments, but there is yet a strategy on achieving the appropriate outcomes, even if the research is evident on the ineffectiveness of current practices.
For those who are literate, the evidence supports that the education did not come from financial literacy programs. Assessments conducted on the literacy of young adults suggests that there are other socialization agents at work, and determining the scholarship of these individuals indicates that something is indeed working. Financial education is happening outside of school or as part of a course other than financial literacy. According to Joseph Farinella et al., "Students appear to benefit more if the money management material is part of another course or learned outside of school" (Farinella). Despite the clear evidence of the value of socialization agents, this information is not part of literacy programs aimed at similar outcomes. Financial literacy programs may never serve those that they are intended to help if we fail to make use of what works. It is admirable that there is a concern for the financial literacy of individuals other than programs designed by institutions, but without this concern, there are many that are being left out without the hope of ever being helped. This interest also allows those that receive adequate financial education from an institution to fill in gaps in their literacy, and also for those who do not receive adequate education to catch up and obtain a similar level of proficiency as others. Based on research conducted by Ning Tang and Paula C. Peter, "Those who lacked financial education in college are able to narrow the gap ... if their parents' have financial experience" (Tang, Peter). The presence in someone's life with financial acumen plays a part in the potential outcome of a financially literate student, but this existence on its own may not be the sole determinant in the development of financial literacy.
Socialization does not have its just due in the development of financial literacy programs. Many behaviors are learned through one's surroundings, and financial literacy is no exception. Research has identified socialization factors as the primary determinant of financial identity in young adults. According to Shim et al., "Young adults display a range of financial identity processing styles that can be classified into three distinct types, each type distinguished by particular socialization factors" (Shim et al.). Research conducted was designed to model styles of identity formation, and similarities were found in financial identity formation as well. They named the three groups Pathfinders, Followers, and Drifters. Pathfinders were very proactive in forming their identity due to their socialization agents, and Followers often heeded to the advice of their parents. Drifters were found to have the poorest financial identity and the least amount of socialization factors that could make a difference. According to Shim et al., "These three clusters (which we labeled Pathfinders, Followers, and Drifters) were found to differ in their socialization factors" (Shim et al.). How they were socialized played a significant difference in their literacy, and shows that if Drifters get to that point, some may very well never reverse the illiteracy that was allowed to develop.
When it comes to financial literacy, the students in these groups - primarily the Pathfinders and Drifters, may very well have a head start regarding economic concepts, and may very well be on their way to figuring most of the rest out on their own, with bits of help along the way. Drifters were found to be clueless and indifferent concerning financial literacy concepts and were either doing the best that they could or not doing anything at all. According to Shim et al., "These students appear to lack a clear understanding of themselves ... but they are trying to figure out which financial management style is best" (Shim et al.). With little to no socialization agents, it will be difficult to know where to begin, and with time they will be added to the financially illiterate population. This is one of the reasons why individuals do so poorly as adults with financial matters. Amongst other factors, not knowing how to navigate the financial system creates problems that are not experienced by the literate in our society. Further research by Shim et al. identifies this trend: "Drifters may be at the greatest risk of suffering the ills associated with poor financial management ... and thus may undermine their drive to achieve self-sufficiency and a successful transition to adulthood" (Shim et al.). For the financially illiterate, it is evident that something is being left out, and the concern towards this trend is not adequate in addressing the problem.
Attempts to tackle the deficiencies in financial literacy by partnering with financial institutions exist. They offer consumer banking products to the public, but these partnerships aim to provide the fundamentals of money management and credit, with the intent of providing direction on how to tackle financial matters as adults. Possible conflicts of interest may exist, however, when solutions are not based on research and carry a perceived bias. In a paper on financial literacy that questioned possible causes and solutions, disagreement was found amongst experts on whether this was an effective strategy. According to Billiterri, "Considerable debate also exists over the widespread use of resources supplied by the for-profit world ... in school-based financial-literacy training" (Billiterri). It is questionable as to whether a for-profit corporation has interest in addressing the financial literacy puzzle when they use their company as a platform through which to impart direction. An argument exists that institutions should back those that have proven results, and shouldn't attempt to address an issue without the proper research and strategy in place. In quoting The Death of Why, written by Andrea Schlesinger, Billiterri offered insight into one of many opinions about the relationships between financial institutions and these programs. According to Billiterri, "They're not teachers, not trained to be teachers - their ability to effectively educate is limited," Schlesinger said. "I think the curriculum is designed ... to offer lessons and to plug products, and I don't think that translates to true learning" (Billiterri). If the education is being offered in the framework of a company's offerings, the socialization agents necessary may be left out and contribute to individuals that are versed in financial products, but not in financial literacy.
Transparency, if it is present, may erase the doubt that there is an ulterior motive towards creating future customers. Promotion of one company's products in such programs questions true motives towards solving financial literacy. As stated by Billiterri in his article, "Some argue that companies providing materials and instruction have a vested interest in promoting their products to easily swayed students" (Billiterri). An institution of any size consists of its people, mission, and desire to make the world a better place - for the most part. It would be naïve, however, to assume that financial corporations have the best interest of others in mind, without a guaranteed assurance of such. In quoting Schlesinger, Billiterri offers another open view of the potential for problems arising out of these relationships. As stated in his paper, she writes "What does it say that we have opened up America's public-school classrooms for banks to hock their wares - supposedly in the name of our children's advancement?" (Billiterri). Institutions that desire to help may have some concern for the problem, but there is no guarantee that the lack of intent exists to do otherwise unless supporting research is given preference in the development of these programs.
When helping those that are financially illiterate, the variables that contributed to the equation should be isolated and addressed accordingly. Financial identities, as stated earlier, are varied, and not everyone develops the same acumen to successfully navigate economic problems as adults. Programs that currently exist may have generic strategies which do not address the complete picture. According to research done by Prof. Van Campenhout, "...tailored programs and programs for specific target groups ... are more effective than generic approaches" (Van Campenhout). These programs should consider socialization agents that are effective, as well as other sociodemographic concerns which affected groups may not be aware of. Assumptions about the literacy of others may impede the effectiveness of such programs. Progress towards literacy is affected, and the program likely ends up another statistic that explains why financial literacy programs are failing those that seek assistance. According to Zimmer, "Too many financial literacy education programs ... do not see the importance of tailoring instruction to the group receiving it" (Zimmer). This causes difficulties when there is an expectation of what one should be able to learn, rather than to take the time to figure out what the specific ailments are, thus prescribing a particular solution.
Preventative measures in financial literacy can assist in decreasing the illiterate population in society. By proactively addressing behaviors that primarily exist due to lack of socialization factors, tailored solutions can be leveraged against financial identities and assist in correcting a problem that helps a large segment of the population. According to Shim et al., "matching individuals to specific financial programs... may help professionals to identify young consumers who are in need of financial education or intervention in the first place" (Shim et al.). With this direct approach, we may work towards eliminating the levels of literacy that exist today and provide those that missed the socialization factors which contributed to their illiteracy. This necessity arises from problems that find their roots in financial illiteracy. Specific problems should not exist with generalized answers, and this approach makes sense if different financial identities evolve in society. According to Shim et al., "targeting interventions ... may be one way to produce positive results" (Shim, Soyeon, et al). The resources being spent on financial literacy programs today can not only be assessed in monetary terms, but also in the exponential problems that remain when the illiterate in any society fails to decrease consistently.
A short-term approach to tackling financial literacy should be one that seeks to involve parents as much as possible. This is a socialization factor that contributes significantly to literacy in young adults and should be given a high priority in developing programs that attempt to eliminate illiteracy. The influence of parents on their children cannot be understated and accounts partially for the three financial identities discussed earlier. According to Grohmann, "There are two channels through which financial behavior is impacted. The first is parental teaching ... and the second is school" (Grohmann). Attempts to influence positive outcomes should start where a significant amount of socialization occurs, and where direction can be influential. Most literate individuals take cues from parents who are financially literate, and for those that do not have this socialization factor, it is an unfair advantage to be excluded. Contributions to the answer may come from a variety of sources, but parents are looked upon and possess the ability to shape behavior unlike any other individual in a young adults life. According to Prof. Van Campenhout, "...the consensus is that for young people parents are the main socialization agents" (Van Campenhout). In reversing the trend of programs being less than effective, new ways are needed to address the roots of financial literacy. What works should be implemented and built into the program so that lasting outcomes can be achieved.
A more perpetual approach should seek to use empirical research and rebuild financial literacy programs based on this research. This strategy should be proactive by creating literacy programs that involve the socialization agents that work, and reactive by finding near identical substitutes for those socialization agents that are excluded from the illiterate. Financial education should not continue with strategies that are convenient and should have a clear direction for those that seek help. According to Prof. Van Campenhout, "...programs often focus on the potential immediate improvements in knowledge ... without examining whether these changes are permanent..." (Van Campenhout). Analysis done through research has succeeded in identifying ways to approach this problem, but these strategies are not implemented in a standardized way. Barriers may exist to parental involvement that keeps them distant from their role as socialization agents, but innovation can address this by figuring out what it takes to make this work. Of all socialization agents that exists, the presence of parents is non-negotiable and necessary for a win-win situation. According to Van Campenhout, "...parental involvement is not well developed in the design of existing youth financial literacy programs" (Van Campenhout). These programs continue to exclude parents from the process, and it is very likely that the time spent on financial literacy may fail to eliminate the problem and continue down the same path.
Without a turnaround, impacts to our society and economy are at risk of increasing, putting strains on resources that can be allocated in a more efficient manner. Spending on programs that do not change financial literacy affects everyone by not reducing the attention needed to deal with the persistent issues within an illiterate society. If we do not implement solutions that are sincere, neglect to do so will impact not only our community at large but also our country. According to Shim et al., "... repercussions extend beyond the young adults, through the potential to further disrupt national social programs..." (Shim et al.). This causes more strain on resources available that can be put to better use by preventing the problem from developing. Programs that have a holistic approach address socialization factors, and build upon parental involvement necessitate the need to return to the drawing board. Creating financially literate adults is a primary focus, should start early and prepare young adults for future financial challenges in adulthood. According to Prof. Van Campenhout, "...program designs...aimed at making young people sufficiently adaptable...while paying sufficient attention to parental involvement are therefore recommended" (Van Campenhout). Financial literacy can be solved, but only if the research if heeded and compromises eliminated in financial education.
Societies should realize their full potential, and this is impossible without financial literacy. There is not enough sharing that occurs amongst groups, which enables a disproportionate number of individuals to become financially illiterate. Programs designed to address these deficiencies have failed to correct the problem, and a genuine approach towards rebuilding financial education is needed to be both proactive and reactive, reaching young adults as well as those affected from missing socialization factors that contribute to economic illiteracy. Empirical research and parental involvement are the ingredients needed to address this long-standing problem. Too many individuals will never become literate on their own, and for those who do not receive financial literacy from their parents, an opportunity may never exist to correct this unless programs tailored to the varied financial identities in our society are put into place. Life may be unfair at times, but it is unacceptable to allow individuals to become financially illiterate when we possess the resources and research to prevent this problem. A genuine approach is needed to reverse the problem, which will one day decrease the population of illiterate adults, improving the welfare of society for everyone.
Billitteri, Thomas J. "Financial Literacy." CQ Researcher
Farinella, Joseph, et al. "The Impact of Financial Education on Financial Literacy and Spending Habits." International Journal of Business, Accounting, & Finance
Gudmunson, Clinton and Sharon Danes. "Family Financial Socialization: Theory and Critical Review." Journal of Family & Economic Issues
Ning, Tang and Paula C. Peter. "Financial Knowledge Acquisition among the Young: The Role of Financial Education, Financial Experience, and Parents' Financial Experience." Financial Services Review
Shim, Soyeon, et al. "Financial Identity-Processing Styles among Young Adults: A Longitudinal Study of Socialization Factors and Consequences for Financial Capabilities." Journal of Consumer Affairs
Van Campenhout, Geert. "Revaluing the Role of Parents as Financial Socialization Agents in Youth Financial Literacy Programs." Journal of Consumer Affairs
Zimmer, Scott. "Teaching Financial Literacy." Teaching Financial Literacy -- Research Starters Education