What Are Financial Barriers?

Married couple meeting with a financial advisor
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Standard of living often depends on the amount of money a person has to spend and invest. Many common activities that can improve one's standard of living, such as going to college, starting a business, buying a home, paying medical bills, traveling and buying a car, require a significant amount of financial resources. When high costs make a certain activity difficult to afford, it is considered a financial barrier.

Basics of Financial Barriers

Financial barriers can arise in many different contexts and affect individuals, families and businesses. You face a financial barrier any time you decide not to do something because of its cost. For instance, you might dream of attending college at a certain private institution with $50,000 tuition, but the high cost might provide enough of a disincentive, or "barrier," to make you choose to attend a cheaper state institution.

Disadvantages

Financial barriers can prevent students from being able to attend colleges and universities, even if they are qualified to attend based on test scores and grades. Financial barriers can also prevent people from starting businesses, even if they have a sound business plan. Not having the right finances often forces people to make hard decisions about how to allocate resources. For instance, a family might have to choose not to buy a larger home or a new car in order to save money for a child's education. Some people are forced to choose between paying for health care and paying rent.

Benefits

Financial barriers can be beneficial, depending on your position in the economy. From a business perspective, large financial hurdles to starting a business in a certain industry can provide a "barrier to entry," which can keep competitors out of the market. For instance, commercial jets cost millions of dollars, which provides a major financial barrier to starting an airline. Barriers to entry tend to be beneficial to established businesses, since competition may cut into sales or force businesses to reduce the prices of goods and services.

Reducing Financial Barriers

There are several ways that schools, business and governments reduce financial barriers. A common way to reduce financial barriers for people is to provide grant money. Grants are gifts of money that are designated for a specific purpose, such as starting a business, conducting research or making a certain investment. Scholarships are gifts of money granted to students in higher education by schools and other organizations to reduce the financial barrier of costly tuition, books, housing and other education-related expenses.

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