In their March 2022 Financial Literacy Annual Report, the Consumer Finance Protection Bureau (CFPB) highlighted knowing the individuals and families served as one of the five principles of effective financial education identified, that together offer a holistic framework for the wide variety of financial education strategies aimed at boosting financial well-being for adults.
In this article, I will be exploring views on how culture affects one’s ability to make financial decisions, relating these views to the first principle in the CFPB strategy of knowing the individuals and families to be served.
In a paper published in 2018 by Martin Brown, Caroline Henchoz, and Thomas Spycher in The Journal of Economic Behavior and Organization on Culture and Financial Literacy: Evidence from a within-country language border. A study was made on the effect of cultural backgrounds on financial backgrounds. The study was based on comparisons drawn from secondary school students along the German-French language border within the same institutional setting in Switzerland.
It was found that students in the French-speaking region had a lower level of financial literacy than those in the German-speaking region. Further, the difference in financial literacy across the language groups was stronger for native and monolingual students than for immigrant and bilingual students. The study asserts that this evidence supports the hypothesis that embedded cultural differences rather than negligible in schooling are driving the effect. A mediation analysis suggested that the cultural divide in financial literacy was related to systematic differences in financial socialization.
Another study on Racial Differences in Financial Socialization and Financial Behaviors of U.S. College Students by Gutter, Copur, and Blanco aimed at analyzing the effect of race on financial socialization and behavior of college students. Gutter, Copur, and Blanco collected data from 13,845 college students aged eighteen and over throughout the United States in 2008. Results showed significant differences in the financial socialization between Black and White college students. The results suggest an important relationship exists between race and financial behaviors. Black students were less likely to save and more likely to engage in risky credit card behavior than White students after controlling for the effects of all other variables. The study aimed to explore potential differences in financial socialization and the effects that these differences may have on financial behavior (budgeting, saving, and risky credit card usage). Both Black and White college students will eventually be responsible for their finances after college, so finding out whether individuals are socialized differently in the financial realm, helps to determine what next steps can be taken in closing this potential race gap.
Variance in African Cultures’ Influences on Financial Socialization:
Another interesting perspective is discussed in a paper on Culture, financial literacy, and SME performance in Ghana by Samuel Kwaku Agyei. In this study, he highlighted that although African economies pride themselves in rich and unique cultural values emanating from diverse tribes and religious beliefs, there is little documentation on the continent’s cultural values and their effects. The study defines culture as those customary beliefs and values that ethnic, religious, and social groups transmit fairly unchanged from generation to generation. The study mentions that culture is reflected in;
- the meanings people attach to various aspects of life;
- their way of looking at the world and their role in it;
- in their values, that is, in what they consider as good and evil
- in their collective beliefs, what they consider as “true” and as “false”;
- in their artistic expression of what they consider as “beautiful” and as “ugly”.
Agyei states that behavioral finance literature concludes that culture plays a key role in explaining investors’ protection, ensuring capital market development, fostering good corporate governance, and innovation.
The study by Agyei also revealed that religious beliefs (Protestantism or catholicism) influence financial decisions. I will highlight only two aspects of the study;
- It mentions the dichotomy between protestants' and catholic beliefs on the economic benefits of property ownership, protestants believe that the economic benefits of property ownership must go to the owners while Catholics consider property as more of social good.
- The pursuit of wealth brings out certain behavioral characteristics such as personal discipline, perseverance, propensity to take a risk, making informed choices, and a drive for goal achievement, among others. According to the study, some empirical works argue that Protestantism promotes individualism and personal responsibility. Consequently, this drive for wealth will lead protestants in business to strive for an organizational culture that is constantly pursuing business growth. Alluding that existent literature on the positive effect of good corporate governance structures suggests that businesses that are run on the values of Protestantism would perform better than those run on catholicism.
These are indeed interesting views of culture or religion and how they influence financial literacy, knowledge, and habits, particularly in the realm of business ownership.
The CFPB works to empower students and young people to make informed financial choices when saving or paying for college, managing money, building credit, and repaying student debt. In their 2022 Annual Report, the CFPB mentions that it assists young consumers directly through the Bureau’s Paying for College suite of web tools, providing webinars, Financial inTuition podcast, and technical assistance to organizations that serve young consumers, as well as drawing insights from students and former students about their experiences with student loans. It also lists available tools and resources:
- Exploring financial aid options: The CFPB’s Paying for College: Your financial path to graduation web tool seeks to help prospective students make informed decisions about financing their college education. The tool helps prospective borrowers navigate financial aid offers by exploring some important concepts and questions about the short and long-term financial consequences of their aid choices. The tool provides tips and money-saving strategies to help students choose an institution of higher education and a financial path forward.
- Understanding student loan repayment options: The CFPB’s Repay Student Debt web guide seeks to improve financial security for consumers with student loan debt. Repay Student Debt provides information and advice to optimize how to pay off student loans. The tool walks people through their repayment options based on some basic information about their specific situations.
- Preparing for financial decisions: In FY21, the CFPB updated web guides to help students and young consumers navigate the financial marketplace for the first time. These web guides focus on big financial decisions and smaller life decisions that can have a significant impact. The CFPB helps young consumers make informed financial decisions on topics such as choosing a student loan or opening a bank account.
- Financial inTuition podcast: The podcast focuses on a variety of topics paying for higher education, managing money, and repaying student loan debt. The podcast episodes include interviews with financial practitioners, students and recent graduates, family members, and young adults who have successfully repaid their student loan debt.
These tools and resources are open to all and therefore can be a remedy to closing any gaps created by financial socialization among or within college students.
The series of articles this month is anchored around bringing to the fore the effects of socialization in its various forms and how it affects or influences one’s financial habits or the lens through which they view financial education and concepts or the desire to pursue financial resources and tools to aid their financial decisions.
I do hope that reading these articles has made you realize your own influences and acknowledging them, allows you to appreciate your financial or money habits. This is the final article in this series of promoting awareness in this month of Financial Literacy.
Thank you for reading! Check out the previous articles if you’ve missed them:
- Financial Socialization and Influences of K-12 Education on Adult Financial Decisions
- Financial Literacy Around the World
- Factors Influencing Financial Knowledge