A woman uses a calculator to budget.

Can Financial Literacy Education Fix Inequality?

Two hundred economists from 67 countries called on the World Bank and United Nations to address the “sharpest increase in inequality since the second world war” (The Guardian). Global inequality is at a “record high,” with 28 individuals as wealthy as half the global population (UN). In the United States, the richest 10% of households have 70% of the national wealth (The Conversation), while 10% of U.S. households can’t get enough food (CNBC). That’s 33.8 million people, three times as many as the total residents of New York City and Chicago combined. There are over 170,000 unsheltered unhoused people in California, a state whose GDP is larger than all but four countries (LA Times). In the past year, the number of unhoused people in San Diego grew by 22% (CBS News). 

Some efforts to address inequality frame the problem as one of education. Wealthy people use financial advisors to make strategic investments and take advantage of tax breaks. Overall, poor people know less about earning, saving, and investing. Black and Latine people are victims of a “racial financial literacy gap” and are likely to use exploitative financial services like expensive check cashing services (Investopedia). Because poverty is associated with worse financial literacy, some conclude that we must teach poor people economic literacy to fix inequality. 


• Support and get involved with Progressive International to dismantle international inequalities.

• Support the Hyde Square Task ForcePOOR MagazineCooperation Jackson, and Debt Collective to fight inequality in the United States. 

Commentators explain that “to be a rich person, you have to think like a rich person” since “common middle class beliefs… may be holding you back from your earning potential” (CNBC). After the Great Recession, Federal Reserve Chairman Ben Bernanke announced that the way to prevent a future crisis was for everyone to have “a basic knowledge of finance and economics” (CBS News). Nonprofits and banks train poor people in poor countries to be better participants in capitalism—by forcing them into debt through “microfinance,” a “system that promises the world’s poor a better life while often compounding their misery” (Bloomberg). 

Financial knowledge actually does nothing to make people wealthier. There’s no evidence of the ability of economic literacy to fix inequality (American Economic Review). As one academic puts it, the “belief in the effectiveness of financial literacy education lacks empirical support” (Iowa Law Review). 

Why has the idea that people are poor because of their own ignorance persisted? There’s a psychological concept called the “fundamental attribution error,” where we attribute our misfortunes to circumstance but the misfortunes of others to character flaws (The Guardian). I might believe I’m unemployed because of the malice of my old employer, but that other unemployed people are too lazy to get trained for in-demand jobs. We might rationalize why we aren’t billionaires or consider ourselves “temporarily embarrassed millionaires,” but think farmers in developing countries or unhoused people could be rich if only they saved more and made smart investments. 

We can’t teach poor people economic literacy to fix inequality since it isn’t a lack of financial knowledge that keeps people poor. So why do poor people keep making “bad” financial decisions that the wealthy do not? As author James Baldwin wrote, “Anyone who has ever struggled with poverty knows how extremely expensive it is to be poor” (NYTimes). 

Teen researchers with the Hyde Square Task Force found a grocery store in Boston’s Jamaica Plain neighborhood charging significantly more for food than its counterpart eight miles away in a much wealthier neighborhood. Residents in the poorer neighborhood would pay $2,800 more a year for the same food (WCVB). People don’t use check cashing places because they don’t realize they’re getting charged exorbitant fees. They use them because they don’t have access to a bank. Low-income households fail to save or invest primarily because they spend an average of 82% of their income on basic needs alone (Brookings). Besides, carefully budgeting for the future is only rational if your sacrifice will improve your life. If you’ll be stuck in the same dead-end job and precarious housing regardless, it’s more rational to treat yourself today (HuffPostThe Atlantic). And people in underdeveloped countries aren’t poor because of a lack of entrepreneurial spirit. They’re poor because Western empires and corporations looted their countries for centuries. 

For decades, wealthy countries deemed “worldwide free market capitalism” “the best route to prosperity.” Politicians, economists, and elite outlets like the New York Times cheered on the destruction of the welfare state, outsourcing jobs in the name of “efficiency and growth,” massive deregulation of the financial system, and predatory loans to poor countries. These policies, not a lack of financial knowledge, created the check cashing industry, allowed the Great Recession, and further impoverished workers in developing countries—all for the benefit of Western business owners, investors, and politicians who profit from the inequality they created. This past June, the same New York Times published a remarkable article admitting that capitalist “globalization hastened climate change and deepened inequalities,” with “dire” consequences for working-class people around the world (NYTimes). We can’t use economic literacy to fix inequality. We must take on the individuals and institutions that produce it. 


• Financial literacy education is often suggested as a remedy for poverty. 

• Economic literacy has no correlation with improved financial outcomes. 

• Poverty is created by policy, not lack of knowledge. 

1080 720 Andrew Lee

Andrew Lee

Andrew Lee is a writer and organizer plotting a better world in Philadelphia. His work has previously appeared in Notes From Below, Perspectives on Anarchist Theory, Plan A Magazine, ROAR Magazine, and Teen Vogue.

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