Without credit, people with the least money pay a little more for almost everything. They could be denied loans that help them buy a car to reach a better job, or to purchase a home to start a family and begin building equity. It’s expensive to be poor, and low financial literacy and lack of access to financial services make it harder to escape the gravitational pull of poverty.

Attacking the problem

“Our mission, and what we see as ‘financial well-being,’ is to advance societal welfare by empowering consumers to make informed decisions, thereby improving their financial well-being,” said Timothy Malefyt, PhD, clinical professor of marketing. “We want to give them the tools so they can best manage their financial situation.”

Gabelli School faculty say the time is now to address a critical, ongoing challenge that affects millions of people across the nation, particularly minority groups and those in lower-income areas. FINRA studies gauging financial literacy over the last decade reveal a steadily downward trend. Equally concerning is the fact that Americans tend to have inflated self-perceptions of their financial knowledge despite low levels of financial literacy.

This issue is well-documented, said Associate Professor Mohammad Nejad, PhD. “In a recent paper on financial literacy, we compared people’s objective level of knowledge with how they ranked their own knowledge,” he said. “A lot of people who saw themselves as opinion leaders on financial literacy were not very high on the chart in terms of understanding how these things work.”

Ignorance can become an accelerant, fueling the spread of incorrect—and potentially damaging—financial information, agreed Professor Hooman Estelami, PhD, whose research explores the impact of social media on financial literacy.

“A lot of the people who post financial advice on social media, even if they have good intentions, are not equipped to give advice,” he said. “Even if a qualified person is giving advice, it has to be general, because for one person, one type of investment might be the right choice, but for another, it could be catastrophic.”

More than math

Retail therapy, as it is jokingly called, is an example of impulsive financial decisions driven by underlying emotions. On a deeper level, our history with finances, ambitions, self-image, and myriad other aspects of our character can also influence financial decisions and our ultimate financial success or failure, according to Estelami. “Because of these emotions and psychological factors, people will make disadvantageous financial decisions,” he said.

The conspicuous consumption of the 1980s is a prime case in point, said Associate Professor Genevieve O’Connor, PhD, citing status symbols produced by brands like Louis Vuitton, Tiffany, and Gucci as surrogates for worth. “It was the signal of who you were in the community,” she said. “Talk about identity, that’s it right there. It told members of your group that you had the means to afford that, and more and more people would buy things, even if they were outside of their means.”

Even those who think they are financially secure may find themselves unexpectedly under water, as the recent pandemic has shown. “We look a lot at underserved groups, but almost anyone can be financially vulnerable,” said O’Connor. Financial well-being and financial vulnerability are intrinsically related—the first is a measure of the individual’s current state, whereas the latter is the likelihood of a future state.

“During the last economic downturn, we saw people who lost their jobs but kept digging themselves into a hole by doing things like keeping up their country club memberships,” she said. “This is directly related to financial well-being. We need to focus resources to ensure that individuals are developing a secure, behavioral mindset and habits.”

Financial well-being is related to one’s assessment of their life and needs, but even more importantly, to their perception of those needs, according to Kabadayi. Even if someone is making more money, it doesn’t mean that their financial well-being will increase accordingly. “You may have a lower overall income, but if your lifestyle and responsibilities fit that level of income, your financial well-being could be better off compared to other people with much higher income but higher demands,” he said. “It’s more your desired living standard and resulting financial freedom.”

Cultivating change

“We asked students to look at ways Visa could help reach underserved communities as part of a capstone project, and they came up with workshops and games and different ways to build in financial literacy,” Malefyt said. “As a result, Visa modified its existing website and games using their recommendations to further engage people and advance financial literacy.”

One of the games the students worked on is “Financial Football,” an attractively animated NFL-style video game that appeals to kids, teens, and (frankly) adults. Players move the ball forward by answering questions on financial basics. Tougher questions answered correctly earn big gains.

Plans for collaborative educational programs with nearby high schools in the Bronx are also underway. “These schools are in an underserved area, and we want to bring in alumni who are success stories and role models to talk to current high school students,” O’Connor said. “We also want to bring in students’ family members, because this all starts in the home.”

Grassroots outreach programs like these are right in line with the research of Nejad and O’Connor, who co-authored a paper examining intersectional approaches to financial literacy that was published in the Journal of Financial Services Marketing. By studying which groups were the most likely to suffer financial vulnerability or adversity, and then breaking down the demographics even further (into subgroups like Black Baby Boomer women or Hispanic Generation X men), they were able to pinpoint the most vulnerable groups more accurately.

Their study identified Gen Y women who are members of ethnic minorities as the most financially vulnerable. “The interesting finding was that examining the situations of narrower groups yields much more useful information than if we just look at one of the broader dimensions,” Nejad said. The Consumer Financial Well-Being Initiative will use data like this to target community outreach efforts and techniques more precisely so they achieve the greatest and widest impact.

The new annual Consumer Well-Being Emerging Scholar Competition encourages scholarly research on financial literacy and equality. The inaugural competition, held in the spring, received applications from as far away as Italy and the Netherlands. Liang Huang, a doctoral student at the University of Arizona, won for her paper, “Consumer Budget Management in the Age of Information Access.” (Applications for the 2022 competition will be accepted through April 2022.)

A grant from Fordham’s Center for Community Engaged Learning (CCEL) is helping to support these projects. Julie Gafney, PhD, the CCEL’s executive director, called the Consumer Financial Well-Being Initiative “ambitious,” and said that it represents a unique opportunity to leverage the assets of the Gabelli School faculty and student body alongside those of neighboring communities. “What I love so much is that it intends to scale, to become a replicable model for how institutions of higher education can collaborate toward enhanced financial literacy nationwide. Through this creative work, we can move forward a culture of community engagement at Fordham and beyond.”

Getting an early start

“In the United States, we spend thousands of hours teaching our kids how to read, how to write, and what history is all about. Compared to that, most school systems do not even have two hours of financial literacy training for their high school students,” said Estelami. “I think we have to get consumers at multiple touch points,” O’Connor agreed. “We need to start educating at an early age, but also developing those behaviors, like saving.”

Besides providing greater access, Nejad suggests that a simplification of some consumer-facing financial services would be beneficial as well. “The decision to invest is a complex decision with a lot of uncertainties. With this and other complex instruments, it can be a bit too much to ask people to do all that math,” he said. On the other hand, it’s easier to understand how to maintain a better credit score, or not using credit just because it’s available. “Those are the decisions that, at least to some degree, everybody can make,” he added.

Developing tools and programs that will ultimately help people become more financially fluent reflects the Gabelli School’s socially conscious mission and Jesuit traditions. “Why are we studying this? Why are we interested in this?” Malefyt asked. “This holistic approach, with its Jesuit values and cura personalis—the care of the whole person—is very important, and this work can benefit a lot of people,” he said. “It’s not about money. Financial well-being is at the root of so many social issues, problems, and family and community matters. It’s about your life, and your relationships with other people, and your happiness.”

—Chris Quirk is a freelance writer based in New York.