Financial Literacy of Low-income Students: Literature Review and Environmental Scan

Research Summary:

Low knowledge of costs, benefits and financial aid pose barrier to higher education

Ontario postsecondary enrolments are rising, but not among students from low-income families.  And of those low-income students who do pursue higher education, approximately half are not taking advantage of government grants and loans designed to help them. Students who could most benefit from financial assistance are not using it.

According to new reports from the Higher Education Quality Council of Ontario (HEQCO), low levels of financial literacy pose barriers to higher education.  The cost of college or university is vastly overestimated by the general public and by low-income youth in particular, yet improvements in financial aid have had little effect in closing the participation gap.

Project descriptions

Financial Literacy of Low-income Students: Literature Review and Environmental Scan  explores current knowledge on financial literacy as a barrier to postsecondary education (PSE), especially for low-income high school students.  Defined in this report as knowledge of all the costs, benefits and available aid associated with PSE, financial literacy has been the focus of numerous studies and programs – many of which are synthesized in the report. 

Twenty-one related studies and 34 related programs are considered, looking primarily at Canada, as well as other countries with similar postsecondary systems, including the US, the United Kingdom, Australia and New Zealand. 

The @Issue paper  Participation of Low-Income Students in Ontario  summarizes current research in the field and is the first in a series that explores the participation of traditionally under-represented groups. This report focuses on low-income students in Ontario.


Ontario leads the nation in postsecondary participation, but despite rising enrolments overall, the number of students from lowest income families attending postsecondary institutions has remained static over the last two decades.

Low-income students, who may already face multiple barriers to participation, often make decisions about PSE early in their school life and those decisions can be based on misperceptions about the costs and benefits of attendance. Both low- and high-income youth underestimate the economic benefits of attending university.
In quantifying knowledge of PSE costs, particularly among low-income groups, a Canadian study found that students in lowest income households (with annual incomes under $25,000) are 24 per cent less likely to accurately estimate costs than high-income households (with annual incomes in excess of $75,000). 

A previous HEQCO study,  Willingness to Pay for Post-secondary Education Among Under-represented Groups , found that from 5 to 20 percent of students are loan averse — meaning that they will avoid grant opportunities when they are coupled with an optional student loan even though the loans can be refused or invested at zero repayable interest. Predominantly needs-based, government financial aid is mostly in the form of loans, although recent years have seen an increase in the proportion of support that is provided in non-repayable grants.  In Ontario, the proportion of non-repayable student aid reached 35 per cent in 2009-2010 — a level on par with the national average. However, despite these changes, low-income participation gaps persist.

Also of concern, a US study found that more than one-third of guidance counsellors ‘somewhat agree’ or ‘strongly agree’ with the statement, “Students from lower-income families should avoid student loans because the consequences of default are so severe.” Only 16 per cent strongly disagree with the statement.  “Given the well-established literature showing large returns to schooling,” say the authors of the financial literacy report, “these results suggest that guidance counsellors may themselves benefit from financial literacy education.”

In Canada, overall knowledge of student financial aid is quite poor among students at all income levels, although somewhat better than in the US, where less than half of the public reports knowing ‘a lot’ or ‘a good amount’ on how to get financial aid for PSE.  But awareness doesn’t necessarily imply knowledge.  A Canadian study paints “a bleak picture” of financial aid knowledge, where undergraduate university students who have loans were only able to correctly answer three of seven questions about financial aid.  See how you fare; take HEQCO’s short  financial literacy quiz  .

In the financial literacy report, the authors were unable to identify any initiatives that explicitly address the financial literacy gaps of low-income youth as a means of increasing participation in PSE, although the report reviews several programs that provide financial literacy information or education to youth in general.

Only two Canadian initiatives, the Toronto-based Pathways to Education Canada and Manitoba-based Career Trek, simultaneously promote participation in higher education while offering some financial literacy support targeted to lower-income youth.  Research continues, including the Social Research and Demonstration Corporation’s Life after High School pilot project in British Columbia, whereby students receive information about postsecondary education and financial aid, as well as guided assistance in completing the application forms. The project will be launched in Ontario shortly, funded by the Ministry of Training, Colleges and Universities.

Further research/Policy implications

Since improvements to student aid over time have had little effect on the participation gap between low- and higher-income students, additional public policy responses are needed to compliment tuition regulation and student assistance. Interventions at an earlier age would help address socio-cultural barriers and perceptions, as well as issues of cost, benefits and loan or debt aversion.

Early intervention programs at the system level, such as those piloted by the Canada Millennium Scholarship Foundation, and targeted programs such as Pathways to Education Canada should be explored in developing new policy models. De-coupling non-repayable grants from student loans should be tested to determine whether it might increase the uptake in financial assistance by low-income youth.

The authors note a lack of Canadian studies on the general topic of financial literacy as a barrier to pursuing postsecondary for low-income youth and a paucity of studies that provide rigorous evidence on the effectiveness of financial literacy programs in helping low-income youth pursue higher education. Before implementing new programs that incorporate postsecondary-related financial literacy, pilot studies should be undertaken to understand their benefits and costs.

Check out this  video  of HEQCO Research Director Fiona Deller discussing financial literacy and its connection to issues affecting low income students.

Financial Literacy of Low-income Students: Literature Review and Environmental Scan was written by Marc Frenette and Jennifer Robson (consultant), Social Research and Demonstration Corporation.

Participation of Low-Income Students in Ontario was written by Fiona Deller,  Research Director for the Higher Education Quality Council of Ontario; and Stephanie Oldford who is also employed as the Manager, Financial Support Initiatives, Student Financial Assistance and Awards at University of British Columbia.

Note to stakeholders:

HEQCO is sponsoring a conference on financial literacy and PSE on Nov. 3-4 at the Toronto Delta Chelsea Hotel.

  • Fear of Finance: Financial Literacy and Planning for Postsecondary Education will feature 
    Leading researchers discussing their work in educational financial literacy
  • Innovators sharing their approaches to improving financial literacy, and
  • An in-depth discussion session on next steps toward improving financial literacy, particularly for traditionally under-represented students. 

Space is limited so register early!​