How Barriers to Financial Literacy Keep ALICE Households From Prospering

Various currency symbols with the words "Financial Stability" in the middle

Financial literacy is a crucial body of knowledge and skills that empowers people to make informed decisions about their finances, plan for the future, and successfully navigate economic challenges.

However, individuals and families who are Asset Limited, Income Constrained, Employed (ALICE) often face significant barriers to financial literacy education and resources, preventing them from prospering. Here’s what financial literacy is, why it’s important, and why it’s so difficult for ALICE populations to acquire the skills they need to achieve financial success.

What Is Financial Literacy?

Financial literacy refers to the knowledge, skills, and understanding necessary to make informed and effective financial decisions. It encompasses various aspects of personal finance, including:

  • Budgeting
  • Saving
  • Investing
  • Managing debt
  • Understanding financial products and services

Being financially literate means having the ability to analyze financial information, assess risks and rewards, and apply critical thinking to make sound financial choices that align with a person’s goals and values. It involves understanding basic money–and credit–related concepts like interest rates, compounding, inflation, and diversification, as well as being aware of consumer rights and responsibilities.

Financial charts and tables with a jar of coins on top

Why Is Financial Literacy Important?

Financial literacy is of utmost importance because it empowers individuals to take control of their financial well-being and make informed choices that can positively impact their lives in the short and long term. Understanding monetary best practices allows people of all incomes to accomplish the following:

  • Personal financial stability. Financially literate individuals are better equipped to manage their money effectively, budget wisely, and avoid excessive debt. They can build emergency funds, save for long-term goals, and make informed decisions about borrowing and investing, leading to greater financial stability.
  • Improved decision making. Financial literacy enables individuals to assess various financial options, evaluate risks and benefits, and make sound decisions. It helps individuals navigate complex financial landscapes and avoid scams and predatory financial practices.
  • Long-term financial planning. Well-informed individuals can plan for their future, including retirement, homeownership, education, and healthcare expenses. They understand the importance of setting financial goals, creating budgets, and implementing strategies to achieve long-term financial security.
  • Entrepreneurship and business skills. Financial literacy is essential for aspiring entrepreneurs and small business owners. It helps them understand financial statements, manage cash flow, make pricing decisions, access funding, and evaluate business opportunities effectively.
  • Economic well-being. Financially literate individuals contribute to the overall economic well-being of society. They are more likely to make responsible financial choices, which reduces the strain on social support systems and strengthens the economy as a whole.

Major Causes of Financial Illiteracy in ALICE Populations

People who are raised with or learn about good financial practices at a young age later come to think of this knowledge as common sense. But for those who don’t receive key elements of this education as they grow up and can’t easily access them as adults, lack of financial literacy can easily drive lifelong hardships. Here are some of the most common barriers to financial education for ALICE groups.

Racial and Ethnic Disparities

Racial and ethnic disparities in financial literacy rates perpetuate socioeconomic inequality among ALICE individuals. Studies have shown that in addition to having fewer financial resources overall, communities of color often face limited access to related learning resources and opportunities. Unequal access to financial education contributes to wealth gaps and reinforces long-running economic disparities. Addressing these requires targeted and culturally responsive financial literacy programs.

Two women with curly hair and a man wearing a pink shirt looking at a laptop screen

Financially Illiterate Parents

Another barrier to financial literacy for ALICE individuals of all races stems from a lack of financial education within their own families. Growing up in households with financially illiterate parents or caregivers limits exposure to sound financial practices and hampers the development of healthy financial habits. Breaking this cycle requires initiatives that provide both parents and children with the knowledge and tools necessary to develop strong financial skills.

Lack of Financial Education in Schools

A significant barrier to financial literacy for ALICE individuals is the absence of comprehensive financial education in schools. Many education systems (including grade school and college)  don’t teach students practical financial skills, leaving young people ill-prepared to become savvy or responsible adults in this regard. Without a solid foundation in financial literacy, ALICE individuals may make damaging mistakes with budgeting, saving, and other financial practices.

Overwhelming Financial Stress

As adults, financial stress itself can act as a self-fulfilling barrier to financial literacy. ALICE individuals often grapple with seriously distressing financial challenges, such as living paycheck to paycheck, dealing with debt, or choosing between buying groceries and paying their bills. This can severely limit their time and mental and emotional bandwidth for seeking out financial education.

Overcoming barriers to financial literacy is essential for empowering ALICE individuals and families to prosper financially. By addressing racial and ethnic disparities, integrating financial education into schools, promoting parental financial literacy, and addressing the underlying causes of chronic financial stress, we can help ALICE individuals develop the necessary skills and knowledge to make informed financial decisions.

A person wearing blue jeans opening an empty wallet with a calculator and papers sitting on the floor

Get the Financial Education With United Way of York County

United Way of York County in Pennsylvania assists working households in our community to achieve financial stability by collaboratively and equitably reducing barriers to prosperity. We offer access to free health and human services, affordable prescription medications, assistance with tax preparation, financial literacy resources, and more to fight for education, health, and economic mobility for all members of our community. 

Learn how to access financial literacy resources, like those facilitated by PA 211, to get the services you need for a financially successful future. Alternatively, consider supporting us by making a donation today!