From Financial Literacy to Financial Capability Among Youth

TLDR

Youth in the United States confront a complex financial landscape, yet economically disadvantaged youth lack both knowledge and access to mainstream financial institutions, revealing a gap in efforts to improve financial policy and service access, especially as financial capability—combining knowledge and access—has been proposed as a more comprehensive goal. The paper proposes shifting focus from financial literacy to financial capability, outlining theoretical and pedagogical approaches and discussing implications for policy, practice, and research. The authors examine theoretical and pedagogical approaches to enhancing financial capability and illustrate these with examples of U.S.

Abstract

Youth in the United States are facing an increasingly complex and perilous financial world. Economically disadvantaged youth, in particular, lack financial knowledge and access to mainstream financial institutions. Despite growing interest in youth financial literacy, we have not seen comparable efforts to improve access to financial policies and services, especially among disadvantaged youth. Instead of aiming for financial literacy, an approach widely promoted in the United States, we suggest aiming for financial capability, a concept grounded in the writing of Amartya Sen and Martha Nussbaum. Building on research in the United Kingdom, the paper proposes that financial capability results when individuals develop financial knowledge and skills, but also gain access to financial policies, instruments, and services. The paper addresses theoretical and pedagogical approaches to increasing financial capability, followed by examples of programs in the United States. In the conclusion, we discuss implications for policy, practice, and research.