Hundreds of thousands of Americans leave prison each year with little or no financial literacy. It's in the interest of banks and the communities they serve to educate them, write Rafael Rogel, of Beneficial State Bank, and Joey Pagaduan, of the Center at Impact Justice.
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Whether fears of a recession are real or overblown, Americans' confidence in the economy has remained low since the pandemic. Far too many communities have been left behind in the recovery and remain vulnerable to economic instability. Financial illiteracy compounds those vulnerabilities — and perhaps no community is more disadvantaged in this area than peoplereturning from incarceration, who typically come home with no credit history or savings. By investing infinancial literacy education for these individuals, banks can build financial resilience while yielding major dividends for our communities and broader economy.
For most Americans, financial literacy is a huge challenge. Eighty percent report never receiving financial education in school. As a result, the vast majority (88%) of adults in the U.S. feel unprepared to call their own financial shots. And that can be costly: A recent survey found that three in five adults feel that their limited personal finance knowledge has led them to make financial mistakes, often costing them $1,000 or more.
For people impacted by the criminal legal system,these challenges are exponentially greater, starting well before incarceration. The linkage between poverty and justice-involvement is well-documented, and communities with higher income inequality tend to also have higher crime rates. The Brookings Institution has found that 56% of justice-involved individuals had essentially no income in the two years before incarceration. Another survey found that 29% were completely unbanked prior to incarceration — three times higher than the national average.
Each year, approximately 600,000 of these individuals are released from prisons and jails, often with little support for reintegration. Typically, they come out of prison in a worse financial position than before, after working jobs for pennies an hour all while paying the costs of their own incarceration. Beyond saving money, every year a person is incarcerated, their credit score drops by an average of 32 points — making it harder to get an apartment or buy a car upon release. Given how difficult it can be to establish financial stability under these conditions, it's no surprise that 43% of formerly incarcerated individuals are rearrested within one year.
Financial literacy education, as part of a comprehensive reentry support package, can help break this cycle. Research from Pennsylvania's Department of Corrections found that 73% of "successful reentrants" (those out three or more years) had an account with a bank or credit union, compared to only 39% of those who returned to prison. This suggests a strong link between financial inclusion and reduced recidivism rates. Good financial education can change the direction of someone's reentry journey, helping them obtain a credit card, build credit history and even save up to purchase a home; in short, it can help individuals returning from prison become successful, contributing members of society.
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Investing in financial literacy for system-impacted individuals is also good business. Banks can not only fulfill their community investment promises and contribute to safer, more prosperous communities — they can strengthen their customer base. Research on high school financial literacy programs shows that a rigorous financial education improves participants' credit scores and lowers the probability of late or missed credit card payments. But financial literacy programs in prison are few and far between, meaning there is a huge market gap for banks to fill.
Banks that want to develop a financial wellness program for this group can start by partnering with community organizations led by or serving formerly incarcerated individuals. This is a crucial first step that will provide invaluable insights and help build trust with the target audience. This community partner can also help financial institutions tailor materials and approaches to address the specific needs and challenges of this population. For example, you can assume a low level of financial and technological literacy — which means programs need to start with the basics like opening a checking account, the fundamentals of budgeting and building credit history. But these individuals also typically have a strong desire to learn.
Additionally, participants may not inherently trust traditional financial institutions, so financial literacy trainers need to take time to build that trust. One way to do this is to meet people where they are, both physically and emotionally. That might mean offering classes through existing reentry programs, online platforms or even in-prison workshops. It's also important to establish a safe learning environment where justice-involved people can share their opinions and experiences, while building their confidence.
This is the moment for banks to step up and leverage their unique expertise to support those most excluded from the financial system. The more people equipped to make good financial decisions for themselves and their families, the better our chances of weathering economic uncertainty while ensuring no one gets left behind.
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