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Women's Financial Empowerment

How Does Culture Affect Financial Literacy?

An understanding of cultural differences — including education levels, socioeconomic status, religion, traditions, family values, and geographical areas — must be taken into account for effective financial literacy training.

The power of culture

Culture can have an impact on the behavior of consumption, saving and investment decision-making of individuals, and the financial growth of households. For example, the differences in asset ownership of various groups in the United States may indicate certain types of saving and consumption patterns and could help explain the differences in financial management and behavior of minorities.

The Federal Reserve Board’s new Report on the Economic Well-Being of U.S. Households provides an interesting snapshot of the financial and economic well-being of U.S. households and the issues they face, based on responses to the Board’s 2013 Survey of Household Economics and Decision-making. This report indicates that experience and expectations with credit appear to vary by race and ethnicity. However, the report goes on to state that the effect is partially explained by other factors correlated with race/ethnicity and credit, such as education levels.

In teaching financial literacy training, it is important to consider:

  • Attitudes toward money varies depending on the cultural context.
  • The role of family in making financial decisions varies from culture to culture.
  • The relationships of individuals within their community can also differ substantially from one demographic group to another.
  • Different cultures and cultural groups can have diverse traditions and values about money.
  • Attitudes toward financial institutions, including levels of trust, can vary among different demographic groups.
  • Differences in religious beliefs can also affect an individual’s use of money, management of financial matters, and financial decisions.

These cultural values and beliefs can either contribute to or work against successful accumulation of wealth and the financial well-being of individuals and families. In fact, they can sometimes cause individuals to take a short-term rather than a long-term view of their lives, which limits investments for their future.

I believe that increasing the financial literacy of all Americans provides economic and social benefits to all levels of our society. Moreover, financial literacy training programs should be tailored to understanding the cultural nuances of different demographic groups to help them with specific challenges in their approach to financial management.

Individuals and organizations that work in the financial education field should have:

  • Knowledge of the specific culture  (education levels, socioeconomic status,  traditions, family values, etc.) of the group toward which financial and economic literacy training is being provided.
  • Knowledge of the resources (formal and informal networks, institutions, etc.) available and that a particular group used to enhance their financial well-being.
  • Knowledge of each group’s willingness or unwillingness to seek help to enhance their economic financial well-being. 

Every financial educator needs to be in tune with the particular cultures that they will address and customize presentations accordingly. This cultural knowledge will increase the effectiveness of financial education programs because the trainers involved will understand the patterns of each group, how they view problems and approach financial decision-making. 

Lastly, financial educators must keep in mind situations when the values of a particular group may be in conflict with mainstream society’s financial values and find ways to bridge these cultural divides

Theodore R. Daniels, Founder and President, Society for Financial Literacy and Professional Development, Inc., [email protected]

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