The Role of Financial Literacy in Reducing the Wealth Gap: The Effectiveness of Financial Coaching in Low-Income Communities (A Case Study of the US and Europe)

Abstract

The wealth gap remains a persistent socioeconomic issue in both the United States and Europe, where low-income households struggle with limited access to financial education, low savings rates, and high levels of debt. While financial literacy has been widely recognized as a crucial factor in economic mobility, existing studies have primarily focused on financial education rather than hands-on financial coaching. This study contributes to the literature by evaluating financial coaching as an intervention strategy and comparing its impact across two economically diverse regions, the US and Europe, where different financial systems and social safety nets influence wealth accumulation. 

This research employs a mixed methods approach, combining quantitative analysis of financial data with qualitative insights from participant interviews and surveys. The study draws on empirical data from 500 participants in New York, USA (Smart Money Coaching Program) and 400 participants in Berlin, Germany (MyBudgetCoach Initiative). Using pre- and post-coaching financial behavior analysis, regression models, and comparative assessment techniques, the findings demonstrate that financial coaching significantly enhances financial stability among low-income participants. Specifically, individuals who received coaching increased their savings rates by 30 to 35 percent, reduced high-interest debt by 20 to 25 percent, and improved their credit scores, enabling them to access better financial opportunities. Additionally, participants exhibited a higher likelihood of investment participation and developed stronger long-term wealth-building habits, reinforcing financial coaching as a strategic tool for economic empowerment. 

Beyond its practical implications, this study contributes to the theoretical discourse on financial literacy and wealth inequality by providing empirical evidence that interactive financial coaching is more effective than traditional financial education in improving financial outcomes. The findings also have significant policy implications, suggesting that scaling financial coaching programs, integrating them into public financial education initiatives, and tailoring them to specific socioeconomic contexts can be key strategies for addressing the wealth gap. Future research should explore the long-term effects of financial coaching beyond the 12-month intervention period, assess its impact across diverse demographic groups, and evaluate the feasibility of integrating such programs into national financial literacy strategies.