Financial literacy’s blind spot

Money know-how is essential to survival no matter where you live in the world. Without adequate financial literacy, it’s difficult to achieve what many experts in the field call “financial well-being.”

A growing field of research suggests one reason financial literacy initiatives have failed to make in-roads, especially for low-income individuals, is because they do not address the many facets of financial well-being, says one of the leading experts in the field.

“Financial well-being for most people is about a balance, and what you see quite strongly is that it really has a social component,” says Adele Atkinson, a professor at the University of Birmingham in the United Kingdom.

Atkinson, who will be in Winnipeg this week, is a member of the university’s well-respected Centre on Household Assets and Savings Management (CHASM). She says financial well- being goes beyond long-term financial security.

It’s about being able to go out with friends or to take time off work to take someone to the doctor. It extends beyond economics and touches on physical and mental health, employment opportunities and personal growth, she says.

Yet understanding how people are doing regarding financial well-being is challenging, especially among economically vulnerable individuals, because surveys and other measures often fail to capture a meaningful picture.

In Winnipeg, Atkinson has found a kindred research spirit in Jerry Buckland, an economics and international development studies professor at Canadian Mennonite University.

Together, they have worked on improving the understanding of how financial numeracy and literacy affect the well-being of low-income individuals.

“It’s often thought that people with low incomes don’t have the right math education and, therefore, struggle with money,” Buckland cites as one misperception, leading from inadequate surveying.

Atkinson is in Winnipeg meeting with Buckland, other experts and organizations involved in financial literacy and support for low-income individuals to discuss these challenges. It’s a stop on a wider visit to Canada that includes meetings with the Bank of Canada.

A leading researcher in the field, Atkinson previously led financial education research for the Organisation for Economic Co-operation and Development for a decade, and she has found that many financial literacy initiatives, including surveys measuring money knowledge, are flawed.

Her research and Buckland’s show low-income individuals do have useful money skills for their needs but not the skills being measured in most surveys.

Although they may not have a firm grasp of the benefits of investing in stocks inside an RRSP (Registered Retirement Savings Plan), they often are adept at stretching dollars.

“Knowing about compounding returns doesn’t apply to their lives because they can’t actually save money,” he says.

That’s one reason why Buckland’s research, including work with Atkinson, has focused on learning more about low-income individuals’ money skills and overall financial well-being.

The research involved about 80 families — many in Winnipeg — on low incomes, spanning several interviews to create “money diaries.”

These diaries revealed individuals have strong money skills related to their immediate needs. The findings also point to how current financial literacy offerings simply don’t apply to them.

“When you’re so focused on making ends meet today, your cognitive bandwidth is taxed,” Buckland says.

Financial scarcity makes it challenging to envision the long-term. These insights have often been missed in financial literacy surveys, Atkinson adds. “They don’t pick up practical application of financial behaviour in very low-income groups because they aren’t designed to measure that.”

The diaries project is now shedding light on the issue.

Buckland says the hope is the insights will lead to improved financial literacy programming and surveys. It may also put the focus on improvements in the social safety net, including a meaningful increase in basic income supports.

“Critics often say that doing that would be a waste of money,” he says, adding the perception is that individuals receiving more income support would blow it, rather than improving their lives.

Yet Buckland argues current supports, like Employment and Income Assistance in Manitoba, are woefully inadequate.

The feds reintroduced the measuring stick of the official poverty line — referred to as the Market Basket Measure — in the late 2010s, aiming to eliminate, for example, child poverty rates. It is based on measuring the cost of basic needs. Prior to that, Statistics Canada used a term called the low-income cut off (LICO), based on a percentage of income a household requires to afford basic necessities.

While the new poverty line is an improved measuring stick, Buckland says the problem with income support remains.

For example, an individual in Winnipeg receives $11,500 annually in government income support, based on 2024 data, and yet the official poverty line is about $27,000 after-tax annually for an individual.

Although income support may not necessarily lead to better long-term decision-making and financial well-being, Atkinson says it’s worth exploring. “Certainly, based on the research I’ve done, it would give these individuals more financial predictability and stability.”

If you face chronic shortfalls, you have no budget flexibility, she adds. That leads to acts of desperation, including using high-cost payday loans that can deepen problems.

Buckland also cautions that addressing financial well-being must go beyond providing adequate financial support. Often, individuals facing poverty wrestle with shelter insecurity and lack proper identification that prevents them from even receiving such support.

He and Atkinson hope their work will lead to better understanding of low-income individuals’ challenges. In turn, that will inform improved services that will have a meaningful impact on improving their financial well-being.

“We need to do something more, because what we’re doing now isn’t working,” Buckland says.

Joel Schlesinger is a Winnipeg-based freelance journalist.

joelschles@gmail.com