Our proposal: We propose to require mandatory financial literacy education for California high schoolers. The improved financial readiness will result in better household management, which lends itself to a sounder economy for future generations.
Why: Possessing financial literacy prepares an individual to contribute to society in a financially responsible way. However, California is one of only five states in the nation with no personal finance education requirements, according to the Council of Economic Education.
Students aren’t allowed to graduate entirely ignorant of financial matters, though. Economics is required as a one-semester course in high school, covering a wide range of topics in a short period of time. Topics include macro- and micro-economic concepts, the government’s role in the economy, the impacts of globalization on the U.S. economy and the significance of financial literacy. No specific personal finance topics are required to be covered.
On the other hand, financial literacy education covers a range of necessary skills, from writing a check to saving for retirement and budgeting for a home purchase. The results are beneficial for individuals and the broader economy, as the Council of Economic Education reports students from states with required personal finance courses have higher credit scores and a lower probability of becoming delinquent as young adults.
Further, the connection between financial literacy and the housing market is easy to make. Individuals who know how to save, keep their debt load in check and balance a personal budget are much more likely to become successful homeowners.
What you can do: Other than showing up at the polls, real estate professionals can’t do much to influence state education standards. But agents can make sure their clients are financially informed during their home buying and selling process.
Do this by taking the following steps with homebuyers — especially first-time homebuyers who are completely new to the real estate transaction process:
- Discuss the need for a down payment and the consequence of mortgage insurance when the down payment is less than 20% of the purchase price.
- Go over the mortgage financing options available to the homebuyer, which affect their homebuying budget and monthly mortgage payment.
- Shed light on the effect of other debts on their total debt-to-income ratio (DTI), which influences the amount of home principal for which they qualify. It may make more sense for the homebuyer to pay down some of their other high-interest debt before applying for a mortgage.
- Discuss the cost of utilities, property taxes, homeowners’ association (HOA) fees and home maintenance that are not included in the mortgage payment. Some homebuyers neglect these costs when planning their home purchase, to their great detriment down the road when they can’t keep up with unexpected costs. This is particularly true of first-time homebuyers who aren’t accustomed to covering maintenance costs themselves.
Need inspiration, or feel uncertain yourself about certain financial topics? The Consumer Financial Protection Bureau (CFPB) has a variety of clear and simple publications, covering reverse mortgages, refinancing procedures and the homebuying process. first tuesday also has a number of forms free for download for you to complete with your clients, including a mortgage shopping worksheet which assists homebuyers to easily compare mortgage terms. [See RPI Form 312]