Written by Gavin Krott – Class of 2025, Southern Connecticut State University
Introduction to Financial Literacy
For individuals that were recently released from incarceration, reintegrating back into society comprises of many different challenges and unique obstacles. One of these major hurdles involves reaching financial stability. Financial literacy is the understanding of personal finance concepts such as saving, budgeting, and credit or debt management. All of these are critical in achieving self-sufficiency, as well as both short and long-term success. Without the proper application of such knowledge, many can face barriers of entry into employment and housing. Below, I will highlight the importance of financial literacy for those starting a new chapter in their life. This will also provide guidelines of support towards a stable life.
1. Budgeting for Basic Necessities
Managing finances begins with establishing a basic budget. Formerly incarcerated individuals may experience obstacles early on that relate to limited income. Budgeting becomes incredibly important with essential expenses such as transportation, food, and rent. According to the Consumer Financial Protection Bureau, utilizing budgeting can minimize the risk of a financial crisis and help those avoid unnecessary debt spending (CFPB, 2021). An optimal budgeting option is what is called the, “50/30/20” split. According to studies done by the University of Pennsylvania, this is designed to allocate 50% of your net income to your needs, 20% to your savings, and 30% set aside to your wants (University of Pennsylvania, 2024). For some, this is a viable option to budget with. Another alternative would be the 70/20/10 split. However, there are many different options to utilize, it is completely personal preference!
2. Avoiding Poor Debt Spending
Those with limited resources turn over to both high-interest loans and credit cards when faced with financial crisis. Engaging with high-interest debt can be a very risky practice when not accounting for the potential long-term risks. In gaining an understanding of financial literacy, many can make more informed decisions as it pertains to both their current and distant financial future. Studies done by the Pew Charitable Trusts highlight the harm that predatory lending actions do to low-income communities (Pew, 2020).
3. Building Credit
Establishing credit plays a crucial role in gaining access to better housing, transportation, to even employment opportunities. Learning the ability to build and maintain good-standing credit can open new opportunities to more stable housing. In addition, great credit in the end allows for more fairly-offered interest rates on future loans. In a report done by the Federal Reserve, improving credit scores makes a significant difference in the overall quality of life for those reintegrating (Federal Reserve, 2019).
4. Creating an Emergency Fund
In creating and consistently maintaining an emergency fund, individuals are better equipped to handle unexpected challenges. For the recently incarcerated, doing this can relieve stress and allow them to focus solely on building a positive path ahead. A good rule of thumb is to work towards having 3-6 months of monthly living expenses ready for emergency use. Utilizing this and a solid budget will allow you to place money into an emergency fund and not have to touch it unless needed.
Summary
Altogether, financial literacy assists formerly incarcerated individuals with the tools and ability to achieve financial independence. Additionally, it bests position those to thrive within society. Programs that focus on financial education with these topics are a great outlet, and can be pivotal in securing a stable and hopeful financial future.
Sources:
- Consumer Financial Protection Bureau. (2021). Financial Well-Being in America. Retrieved from https://www.consumerfinance.gov/data-research/research-reports/financial-well-being-america/
- Pew Charitable Trusts. (2020). Payday Lending in America: Who Borrows, Where They Borrow, and Why. Retrieved from https://www.pewtrusts.org/research-and-analysis/reports/2020/05/payday-lending-in-america
- Federal Reserve. (2019). Credit Scores and Credit Access. Retrieved from https://www.federalreserve.gov/publications/2019-credit-scores-credit-access.htm
- National Endowment for Financial Education. (2022). The Importance of Emergency Savings. Retrieved from https://www.nefe.org
- “Financial Literacy Concept with Stacked Coins and Growth Arrow.” Shutterstock, 2023, www.shutterstock.com/image-photo/financial-literacy-2195605515.
- “Ways to Build Credit Score Concept with Businessman Tugging Credit Indicator.” Adobe Stock, Image ID: 500610310, 2023, www.adobe.com/stock.
- “Article Cover Image Featuring Business Concept.” LinkedIn, 5 Sept. 2023, media.licdn.com/dms/image/D4D12AQHjnp8H542LQg/article-cover_image-shrink_600_2000/0/1693976745162?e=2147483647&v=beta&t=Ulo8gzzhOUrsxfw_vfmDbiELd7OlRXG1hzUXEKaDCGg.
- Student Registration & Financial Services. “Popular Budgeting Strategies.” University of Pennsylvania, https://srfs.upenn.edu/financial-wellness/browse-topics/budgeting/popular-budgeting-strategies. Accessed 15 Nov. 2024.
