Reimagining Financial Literacy Programs for Economic Empowerment
Today, I want to share some thoughts about financial literacy and business accelerator programs as a way of promoting economic development, particularly within the international development context. The current approach needs a serious makeover.
Here's the classic scenario: provide underserved communities, and particularly women and SMEs with financial literacy programs believing that teaching them the financial ABCs will magically fix everything. We like to think it's working but the research tells us otherwise.
Here in the US we know that the US had poured more than $670 million into financial education training programs (Consumer Financial Protection Bureau, 2013). And yet, time and time again, academic experiments have proven that information alone doesn't cut it when it comes to motivating positive decision-making around money (Fernandes et al., 2014). Why? Because cognitive hurdles often stand in the way, even when people know what they should be doing with their money, the don't do it (Benhabib, Bisin, Schotter, 2009).
Why, you ask? Because the traditional financial literacy narrative conveniently overlooks a significant player: trauma and its profound impact on our relationship with money.
Trauma and Money
In our modern world, money often holds two key meanings: value and safety. For those who have experienced trauma, managing these aspects becomes challenging. Trauma, whether from relationships, society, systems, or generations, plays a significant role in shaping our money decisions.
Stress and triggers related to money can significantly impact our nervous system, leading to a cascade of physiological responses that influence our financial decisions and behaviors. When confronted with financial stressors, our bodies often enter a state of heightened alertness, activating the sympathetic nervous system, commonly known as the "fight or flight" response. This response can impair cognitive functions, making it challenging to think rationally and make sound financial decisions.
Additionally, chronic stress can contribute to elevated levels of cortisol, a stress hormone, which, over time, may lead to impulsive financial behaviors, avoidance, or other maladaptive responses. Understanding how financial stress affects the nervous system is crucial in developing strategies to regulate and mitigate its impact on our financial well-being.
Contrary to the idea that trauma is only linked to big events, it's actually our body's response to toxic stress and adversity. It can be a single event, but more often, it's woven into our daily experiences—shaped by our environment, upbringing, and ancestral history. Recognizing these threads of trauma helps us understand how they intricately impact our sense of value and safety, profoundly influencing our financial decisions.
A Personal Example
Here's a personal example that highlights the gap between knowledge and behavior. While I've worked on my money issues previously in coaching, over the last 15 weeks I've undertaken an even deeper reflection of my own relationship with money through my Trauma of Money coaching certification program. While I possess a good understanding of what I should be doing with my finances, knowledge alone doesn't always translate into action. Uncovering layers of my financial behavior, I've identified a pattern of financial avoidance rooted in my own experiences of trauma. This awareness has been a crucial revelation, highlighting the need to address not just the cognitive aspects of financial literacy but also the emotional and somatic components that influence our money decisions. Through this exploration, I've gained valuable insights into how personal histories shape financial behaviors, emphasizing the importance of a holistic approach to financial well-being...
Now back to financial literacy....
Traditional approaches to financial literacy tend to place the onus on the individual to fix their financial situation, conveniently ignoring the fact that indigenous people, black people, people of color and women have been systemically excluded from financial services and systems. This systemic exclusion, grounded in historical injustices and discriminatory practices, has perpetuated financial disparities. Simply teaching financial literacy without addressing these systemic issues and acknowledging the negative impacts of capitalism is akin to offering a solution without acknowledging the root problems. To truly reimagine financial literacy, we must confront and dismantle these systemic barriers, ensuring equitable access and opportunities for all.
Additionally, we can't just teach people the ins and outs of money. We need to help them examine their relationship with money. What's their narrative about money? Where does it come from? Do they carry shame about past financial decisions, and can we support them to release it? Can we help them understand what happens in their body when they are triggered about money? Can we help them think more about how they want to earn, what they want their relationship with money to become? It's time to delve deeper into the emotional and psychological aspects of financial literacy, creating a holistic approach that truly empowers individuals to transform their financial lives.
A Different Approach in PNG
I saw the benefit of a trauma informed approach to SME support and financial literacy first hand in Papua New Guinea (PNG) when working with The Difference Incubator. In 2021, amid the swirling chaos of the pandemic, we partnered with the Women's Business Resource Centre in PNG to extend support to 116 women business owners grappling with unique challenges. This wasn't your run-of-the-mill business training; we designed it to be a potent concoction of business know-how and trauma informed mindset and financial coaching. We found most of the women already had lived experience of running a business and financial know how, however they needed support to redefine their relationship with money by healing trauma and deepening their own sense of value. We also trained 4 local women to lead this work. The result?
95% of participants expressed newfound belief in themselves and their businesses due to coaching support
91% reported an increased sense of confidence
91% gained clarity on the barriers holding them back in their business
64% won new customers
100% stated that coaching positively influenced their businesses chance of survival.
2/3 of surveyed participants doubled their revenue, even during economic downturns brought on by the pandemic. They attributed 75% of this growth directly to the coaching program, highlighting the significant financial impact of our approach.
So, what's the big takeaway? It's not merely about cramming knowledge into brains; it's about addressing the emotional and mindset hurdles that often get overlooked. It's about recognizing and supporting the humanity of all people and taking a trauma informed approach to this work. International development needs to embrace a different approach to financial literacy that includes trauma informed coaching support as a staple and find ways to take the responsibility off of individuals and engage in systems change.
Where to from here
My incredible Trauma of Money certification has been a game-changer, equipping me with an even deeper understanding of how to reshape financial literacy in international development. The TOM certification has empowered me to bring a fresh perspective, and I can't wait to share these profound insights as we reshape financial literacy in international development. Stay tuned for the journey ahead!
Kate
References:
Consumer Financial Protection Bureau. (2013). "Financial Literacy Annual Report."
Fernandes, D., Lynch Jr, J. G., & Netemeyer, R. G. (2014). "Financial Literacy, Financial Education, and Downstream Financial Behaviors." Management Science, 60(8), 1861-1883.
Benhabib, J., Bisin, A., & Schotter, A. (2009). "Present-Bias, Quasi-Hyperbolic Discounting, and Fixed Costs." Games and Economic Behavior, 66(1), 17-28.