Financial Literacy for Convicted Felons: A Way to Lower Recidivism?

One way to lower the US incarceration rate could be to give inmates financial knowledge they need to get by upon reentry.

On the outskirts of Bismarck, North Dakota, is the Missouri River Correctional Center, locally known as “the Farm.” While unassuming from the outside, this small, minimum-security state prison is making huge strides to rehabilitate inmates and better prepare them to reenter society. From training service dogs to cleaning the local zoo to participating in charity events, the efforts seem to be working: North Dakota’s three-year recidivism rate is between 35 and 40 percent, compared to a national average of 68 percent.

The prison reform efforts in North Dakota are being led by Leann Bertsch, Director of the North Dakota Department of Corrections and Rehabilitation (DOCR). Bertsch began implementing extensive reform efforts following a 2015 trip to Norway to learn about the country’s incarceration system, which is often credited as being the most humane in the world. The biennial DOCR report following the Norway visit listed several new program offerings across all five of North Dakota’s state prisons – including financial literacy training.

As we’ve written about in the past, financial services are critical for the nearly 1.5 million inmates in U.S. prisons to be able to make phone calls, send emails, and purchase toiletries and clothes. Financial literacy already a meager 57 percent in the United States. This figure is much lower among inmates, who often come from low-income backgrounds and experience financial stressors early on in life. The income levels of inmates prior to incarceration are, on average, 41 percent lower than those who have never been incarcerated. A 2014 study found that incarcerated people were less likely to have ever had a checking account or credit card, and more than twice as likely to take out payday loans and three times as likely to pawn an item than their nonincarcerated counterparts. Basic understanding of how to manage personal finances and efficiently allocate earnings are crucial components of ensuring offenders do not turn back to crime in desperation.

Financial literacy is already a meager 57 percent in the United States. This figure is much lower among inmates.

In a 2013 study, inmates cited several barriers to financial services that contribute to their financial illiteracy. These included high overdraft fees, checking account minimum balance requirements, and a general mistrust of banks, especially by those who have obtained their income illegally. Financial literacy educators often suggest avoiding commercial banks in favor of joining a credit union, and participating in Financial Reality Fairs to game out real life financial scenarios.

While North Dakota has one of the lowest incarceration rates in the country, it isn’t alone in its efforts to help inmates successfully reenter society. Two years ago in Pennsylvania, a consortium of state agencies began hosting Financial Reality Fairs to help reentrants learn basic banking and money management. In February 2017, the Kewanee Life Skills Re-Entry Center opened in Illinois to help inmates reduce their susceptibility to recidivism through three phases of required programing – one of which is financial literacy.

Financial literacy programs focus on knowledge acquisition and skill development with the goal of helping inmates understand best practices in money management, like how to save money, build credit, and budget. Many may question the use of taxpayer dollars to fund training and education programs for those found guilty of a crime. However, the cost of keeping those people incarcerated is in fact much more expensive. Inmates who receive education are less likely to return to prison, and a RAND Corporation study estimated that for every $1 invested in a prison education program, incarceration costs three years post-release were reduced by $4 to $5.

There’s lots of talk about reforming our prison system. As the founder of R3 Score, Teresa Hodge is one of the leaders in this fight. R3 Score helps individuals with criminal records find their footing through a three-pronged approach: financial literacy, inclusive entrepreneurship, and community engagement. The company’s fintech analysis tool aggregates data to de-risk people with criminal histories. This data is then turned into a score for decision makers – like potential employers – to improve access to opportunities for qualified individuals.

With nearly 90 percent of inmates of working age and 1 in 28 American children with a parent behind bars, it is economically and socially critical that we support rehabilitation efforts to help offenders successfully reintegrate. While financial literacy alone may not be the leading cause of reduced recidivism rates, it can equip offenders with essential knowledge to support themselves upon release.

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