Targeting the Unbanked: Financial Literacy's Magic Bullet?
This paper discusses issues related to adult financial illiteracy in the context of the American Senate bill 1321 (S.1321) which was amended in 2006. The bill supports entities that offer tax preparation services and assistance with opening accounts in depository institutions.
The paper notes that adult financial illiteracy is a major problem in many parts of the world. It discusses reasons for financial illiteracy and highlights efforts by Networks Financial Institute and other organizations to promote financial literacy. The paper lists the key positive implications of S.1321. These include:
- Incentives for the unbanked to use banking services by linking tax refunds to bank accounts;
- Potentially, higher rates of return and more low cost options than in private sector plans;
- Shift in focus and mission of charities and community organizations towards financial literacy;
- Shift in focus of low income individuals to saving and wealth accumulation;
- Increased access to electronic banking.
The paper states that government subsidies could allow better pricing of accounts to alleviate reputational risk involved in providing financial services to low income individuals.