Social and economic benefits of improved adult literacy: Towards a better understanding

Assessing the social and economic costs of poor adult literacy and numeracy is largely uncharted territory in Australia. The benefits of investing in adult literacy and numeracy skills have also been under-researched. This study explores the various frameworks and methodologies available, with a view to informing future research and policy development.

• The most comprehensive relevant frameworks on costs and benefits relate to adult learning rather than literacy per se. They point to the importance of taking into account factors such as age and gender; collective as well as individual benefits; the ‘sustaining’ benefits of learning that enable people to continue or improve what they do in their communities; and the more recognisable ‘transforming’ benefits, such as increased employability.
• Longitudinal cohort studies will be an important source of data for measuring benefits and costs, and in particular for demonstrating the sustaining and transforming nature of improving literacy and numeracy skills. Given the high costs associated with longitudinal studies, the feasibility of ‘buying in’ to existing studies should be explored as an immediate short-term option in Australia.
• A mixture of quantitative and qualitative methodologies and the inclusion of individual, family and community impacts are likely to produce the most convincing evidence and understanding of costs of poor literacy and benefits of improved literacy.

Purpose and methodology

This study reviews a wide range of domestic and international literature to identify the frameworks and methodologies that have been used to estimate the costs and benefits associated with literacy and numeracy. The focus is on estimating economic and social costs and benefits across contexts such as health, finance, family relationships and crime, rather than traditional economic areas, such as productivity and the labour market (although this literature is briefly reviewed).

The overall purpose of the research is to work towards obtaining more reliable and useful estimates of the economic and social costs of poor adult literacy and numeracy, and the benefits of improving such skills in Australia.

This was an exploratory study involving a literature search and consultations with researchers experienced in longitudinal studies and cost–benefit analyses, as well as with experts with an understanding of how literacy influences the fields of health and finance. Reflecting the content of the literature, the report does not explore in any detail the benefits and costs of numeracy. Nevertheless, it is recognised that numeracy is an important area, and that further research is required in relation to costs and benefits.

The literature

Research studies providing estimates of the costs of poor literacy or the benefits of improving literacy exist across a range of economic and social domains, particularly in the international context. In relation to social contexts the relevant literature spans a wide range of areas, including health, financial and consumer issues, families, crime and social capital.¹ This study examined all of these areas, but used health and financial literacy as two main areas of interest. Small business was also identified as a main area of interest, given that a number of studies have examined the costs to business and employers of poor literacy skills within their workforce and/or the benefits of improving these skills. A small body of research on the costs and benefits for selected population groups also exists. This study therefore briefly reviews the literature for older people and Indigenous Australians.

General findings

The available frameworks and methodologies examined highlight the complexity of measuring costs and benefits and indicate that a range of factors should be addressed when undertaking research in this area. One of the key issues to emerge is the importance of a multi-disciplinary and multi-method approach to determining and measuring benefits and costs, and the need to integrate human² and social capital approaches during this process. There is a need to embrace both rigorous quantitative and qualitative methodologies. Longitudinal cohort studies (studies which follow the same group of people over time, generally over a period of several years) are an important, but costly, source of data for measuring benefits and costs.

Selected areas of interest

Health literacy

An increased focus on measuring the impacts of poor literacy on health in Australia is timely, particularly given the emphasis in the health sector on self-management.

The international research on ‘health literacy’ is considerable. Studies have found links between lower literacy and a higher risk of hospitalisation, higher rates of depression and an inability to understand and comply with the use of prescription drugs.

Health literacy is a broad concept linked to the impact of poor literacy on general understandings of health issues, access to information, including knowledge about specific conditions such as asthma and diabetes, and participation in healthy behaviours. Less attention has been paid to mental health issues, although links are also being made here.

Overall, there is a need for research to go beyond studies which measure the association between health literacy levels, and knowledge and behaviour. In the future, a greater focus is required on measuring the benefits of investing in health literacy from the perspectives of individual health outcomes, and perhaps cost savings. Some potentially useful frameworks exist; for example, Nutbeam’s (1999) framework which places health literacy in the broader arena of community and public health.

Financial literacy

A significant body of research from the United States has measured the benefits of improved levels of adult financial literacy gained through work-based financial education or high school-based programs. More recently within Australia, the Commonwealth Bank Foundation (2005) published research, which went beyond the ANZ Bank’s (Roy Morgan Research 2003) previous study of levels of financial literacy within the population, to examine the individual and economic benefits of improving financial literacy levels. During 2005, the Consumer and Financial Literacy Foundation was established by the Australian Government to implement a national strategy for improving the consumer and financial literacy levels of Australians.

Nevertheless, important issues remain to be resolved in measuring financial literacy. These issues include achieving a better understanding of the relationship between financial literacy and low income levels, and the influence of attitudinal and psychological factors. Furthermore, research into the interaction between the financial literacy levels of employees and employer costs and rates of return has yet to be fully examined in Australia. A link between poor financial literacy and unemployment has been established, but much of the emphasis of existing research has been on employed rather than unemployed groups.

Business and employers

A range of methodologies have been used to measure the benefits of improving literacy and numeracy skills amongst employees, although a much larger body of literature exists on the benefits of investing in training in general. Research examining the impact of literacy and numeracy typically focuses on cost savings and/or productivity gains to the company, although some studies have looked more widely, and include employee-focused outcomes, such as levels of promotion. Research from the United Kingdom suggests that most small business employers are largely unaware of poor literacy and numeracy skills. This is also a neglected area of understanding and research within Australia.

Possibilities for future research

A number of challenges exist in undertaking high-quality research on estimating the costs and benefits associated with literacy [and numeracy].

For the three areas selected in this study, further work is needed to address underlying conceptual issues, and in relation to the overarching notion of multiple literacies. Current measures of literacy and numeracy need to be refined, particularly in light of changing knowledge demands in life and work in the twenty-first century. Further research is required on the interactions between multiple literacies and the different impacts of factors, such as age, gender, life circumstances, and level of literacy and numeracy disadvantage. A combination of robust qualitative and quantitative methodologies is likely to be the best approach for capturing and understanding the range of costs and benefits. Numeracy tends to be the poor relation in the ‘literacy and numeracy’ partnership, yet its importance is undoubted; considerably more research is needed in this area.

It is clear from the consultations undertaken for this study that future research will depend on convincing government and research funding bodies that understanding adult literacy and numeracy costs and benefits is an important individual, community and national issue.

Further targeted consultations should be undertaken to reach a wider range of people in the areas of health literacy, financial literacy and literacy in small business. Small collaborative cross-discipline working groups could then be esablished to obtain agreement on priorities and appropriate methodologies and to jointly seek funding for further research.

More broadly, collaboration across sectors and research partnerships is crucial to the ongoing assessment and measurement of social and economic costs and benefits associated with literacy and numeracy. There is considerable scope for small- and large-scale research in the three sectors this study examines. As a first step, the possibility of buying into existing Australian longitudinal studies should be explored.

The uncharted nature of research into benefits and costs associated with multiple literacies in Australia, together with what has been learnt from the diversity of overseas literature reviewed here, leaves the way open for some focused initiatives which will ultimately contribute to a broader understanding of this area and lead to stronger policy development.

Additional information relating to this research is available in Social and economic benefits of improved adult literacy: Towards a better understanding—Support document (available in the downloads). This document contains a literature review on mapping benefits and costs.

1 Social capital is generally understood as aspects of social organisations such as networks, shared values and trust that help facilitate cooperation and contribute to individual and social wellbeing. Debates about the concept and how it is best measured are ongoing.

2 Human capital is the notion in which workers are vehicles for the economic progress of the nation.