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How Financially Literate Are Today’s Consumers?

money, house, affordable, housing, buyingWhat did American consumers learn about credit and finances following the housing-market collapse and ensuing economic crisis, and have lessons from the late aughts carried over to today's pandemic and post-pandemic environment?

Researchers at WalletHub wondered, "How much have we learned from past mistakes, and what are we doing to help future generations avoid repeating them?"

Then they analyzed financial-education programs and consumer habits—combined with the results of their proprietary WalletLiteracy Survey—in each of the 50 states and the District of Columbia in an effort to find the answer.

The unsettling conclusion: "Not enough."

"We ended 2020 with close to $1 trillion in total credit-card debt, even after record-breaking paydowns due to the COVID-19 stimulus," WalletHub Managing Editor John S Kiernan said. "Our mountain of debt is unsurprising, considering that less than half of adults actually have a budget. It’s clear that better financial education is necessary to try to turn this trend around. The problems aren’t as pronounced in every state, though; some are more responsible than others."

Here's how each state fared (hover over the state to see its rank):

Source: WalletHub
Virginia, Utah, Colorado, New Hampshire, and New Jersey topped the list of most financially literate states in the country.
The researchers went on to break down the rankings while taking into consideration factors including gender, race, income, marital status, education level, and age. All of those scores are viewable at WalletHub.com/edu.
The study also showed how financial literacy correlates with credit scores, also by state.

Source: WalletHub

The National Association of Realtors (NAR) last year published a report on financial literacy and homeownership, which showed that financial literacy is an important determinant of homeownership because it affects savings behavior.

"If parents do not teach the right values and skills, we can see some of the reasons why it is difficult for adult children to make strides in making sound financial decisions, including purchasing a home," noted Research Data Specialist Michael Hyman.

That research, available at NAR.realtor/blogs, examines financial literacy indicators and how a low level of financial literacy could contribute to the wealth gap, the variation in homeownership among ethnic groups, and the importance of financial literacy in addressing these issues.

Experts weighing in on WalletHub's study discussed, among other things, the correct balance between expecting consumers to educate themselves versus regulating financial service providers.

Business professor John Colletti said that while "self-empowerment gained from one’s financial understandings is invaluable," regulation is necessary "due to unscrupulous business practices" and to assist those "lacking solid financial knowledge."

Jennifer Bethel and Robin Kahn, faculty members and facilitators of a financial literacy project at Babson College, point out that the consumer finance landscape is far more complicated today than it was even 30 years ago.

"Regulating financial service providers to fully and fairly disclose information about financial products is an essential first step, but it does not address the broader education issue," wrote Bethel and Kahn in a co-response to the study's findings. "Consumers, each of whom is making critical financial decisions, have different needs concerning education and the need for protection. A concerted education campaign is an important second step."

About Author: Christina Hughes Babb

Christina Hughes Babb is a reporter for DS News and MReport. A graduate of Southern Methodist University, she has been a reporter, editor, and publisher in the Dallas area for more than 15 years. During her 10 years at Advocate Media and Dallas Magazine, she published thousands of articles covering local politics, real estate, development, crime, the arts, entertainment, and human interest, among other topics. She has won two national Mayborn School of Journalism Ten Spurs awards for nonfiction, and has penned pieces for Texas Monthly, Salon.com, Dallas Observer, Edible, and the Dallas Morning News, among others. Contact Christina at christina.hughesbabb@thefivestar.com.

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