Insights

5 Financial Lessons Everyone Should Learn and How Lenders can Help

October 21, 2021
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Certified Credit

Ask any elementary student how many apples Jane can buy if Jane has $10 and apples cost $2 each, and they will be able to tell you. Then, ask them what a credit card is, and they will either look at you blankly or reply, “An endless money card?” Unfortunately, ten years later, that same person will know much more complex mathematics but potentially the same amount about finances.

A study performed by the George Washington Financial Literacy Center found that “only 24% of millennials demonstrated basic financial knowledge.”1 So, how can we, as financial institutions, solve this problem and ensure the next generation become financially literate consumers?

Teaching a few basics about the world of finance before young adults begin making real-world decisions with lasting consequences can mitigate many of the financial crises families and individuals face throughout the country. Here are a few lessons lenders can help teach every person to ensure a stronger financial future:

1. How to Buy a House

How old were you before you realized buying a house was slightly more complicated than the HGTV shows where they pick out one that looks nice and then hand over a great wad of cash? Buying a house is one of the biggest and most significant financial decisions many people ever make. Yet, few young adults know how to build up to this eventuality by establishing a good credit score or saving for a down payment.

Many first-time homebuyers lack a basic understanding of the process of taking out a mortgage. Teaching the basics of budgeting for mortgage payments and understanding the fluctuations in the real estate market would empower the next generation to make intelligent decisions and avoid overextending themselves financially.

2. How to Build Your Credit History

Do you remember the first time you applied for credit? For many, the first step to building their own credit is having a credit card. Many young adults have little savings as they head out into the world. However, they still need access to money for college, transportation, and housing. Unfortunately, without an established credit history, they may only be eligible for high interest rate options.

Teaching young people the steps to build good credit before these needs arise can make all the difference to them later. Many creditors offer programs and credit cards aimed at teens that help students learn how to use one responsibly. Credit cards cosigned by a parent or secured by a cash deposit are great places to start and are best established when parents can assist in the process.

3. The Basic Steps of the Mortgage Process

For those not familiar with mortgages, the process can feel long and cumbersome. They may not understand why lenders require multiple weeks to approve and process these loans. Those directly involved in the process know it takes time because there are many steps, and each one helps protect the lender, the borrower, and the seller from potential losses or fraud.

Educating loan applicants about the verification steps their application goes through during processing and underwriting can ease the stress of waiting for final approvals to come through and help them feel confident in their borrowing decision. They will understand how all of the checks, from mortgage appraisals to employment verifications and credit checks, ensure the honesty and integrity of all parties involved in the transaction.

4. How to Talk About Mortgages

While talking about buying their first house is exciting for many young people, they can get lost in the unfamiliar vocabulary used by lenders and real estate agents. A basic understanding of common lending terms can help individuals feel more comfortable and informed throughout the process.

Lenders who assist clients in navigating terms such as origination, amortization, and escrow will help create a generation of financially-savvy borrowers able to converse intelligently about the process. Defining terms as you introduce them, providing a FAQ or glossary of commonly used terms can be immensely helpful.

5. How to Budget

The launch point in any financial literacy course, budgeting remains the bread and butter of personal and professional finances. People may establish good credit and qualify for a mortgage, but neither of these things brings true freedom from money stress.

According to Charles Schwab’s 2019 Modern Wealth Index Survey, 59% of American adults report that they live paycheck to paycheck.2 Solid budgeting skills and saving habits make retirement, holidays, and business ventures real possibilities. By supporting budgeting classes in schools and helping to establish financial education classes, you can help raise money satisfaction and life enjoyment across the country.

Change is Coming

Nationwide, banks, lenders, and financial institutions are stepping up to advocate for financial education and support the development of literacy courses for our nation’s youth.

  • Virginia Credit Union of Austin, Texas, is partnering with local organizations such as the RVA Reads and Southampton Elementary School to provide books about managing money to elementary school students in the Richmond, VA area.
  • The Charles Schwab Foundation announced plans to launch their Moneywise America program to make personal finance classes available in every middle and high school in the United States by 2025.
  • Fifth Third Bank offers an online Finance AcademySM to teach teens within the bank’s ten state footprint about finances.
  • The NAMMBA’s Visionary Ambassador program, in connection with sponsors like us, provides classes to assist college students in achieving their career goals in the real estate finance industry.

These programs, and many more like them, operated by finance leaders, make a difference in the future of our young people. They teach vital information about budgeting, saving for the future, building their credit score early, and how to use loans wisely to buy a house someday. They are helping teach children and young adults now how to have conversations about money with their peers, parents, and professionals.

There is still much more that could be done to ensure we are arming them for the financial decisions they will encounter in the future. In the new year, consider how you might get involved in the effort to close the financial learning gap and help set the next generation up for success.

Sources:
1. Millenials & Financial Literacy-The Struggle with Personal Finance
https://gflec.org/wp-content/uploads/2016/09/pwc-millenials-and-financial-literacy-3.pdf?x93521

2. Schwab Modern Wealth Index Survey 2019. (n.d.). Schwab Brokerage. https://www.aboutschwab.com/modernwealth2019