When I was teaching economics to first-year college students, I was often met with blank stares when I discussed micro-economics and household budgets. The students lacked familiarity of financial literacy basics such as banking, earnings and saving for financial emergencies, the difference between saving and investing, costs and borrowing for college, and identifying both short and long-term financial goals. While most wanted a car or eventually a home, they couldn’t define the financial ramifications of whether to rent or own. This could all change if New York State begins requiring that high school students take a course in personal finance to graduate. New York is one of 15 states, which doesn’t currently mandate a financial literacy course to graduate.
The importance of financial literacy is that research indicates that students who have a financial education more often than not have less debt and a better quality of life, while those with poor financial literacy are more likely to make bad borrowing decisions, have higher debt, more loan defaults and higher bankruptcy rates. With housing costs increasing by 70% during the last decade as compared to income growth of 30%, financial literacy is needed more than ever. For some it couldn’t come soon enough.
According to the Census Bureau’s Household Pulse Survey, nationally 21% of people feel they will face eviction within two months, 15% are behind in their rent, 7% are worried they will face foreclosure and 4% are behind in their mortgage payments.
Closer to home, 40% of New Yorkers fear foreclosure, [fourth-highest in the nation] with 3% behind in their mortgage payments. For New York renters, 18% are behind in rent, ranking ninth in the nation.
Nationally, 27% of men were at risk of eviction and 10% faced foreclosure, as compared with 18% of women risking eviction, and 8% facing foreclosure. The eviction risk, foreclosure fears, and late mortgage payments between races and ethnicities furthers an eviction-foreclosure-late mortgage payment gap.
With home ownership the American dream, it’s essential to learn the financial basics that family budgets should allocate 50% for necessities, 30% to what is wanted, and 20% for savings.
It’s also necessary to understand the role of debt. While some is necessary and good, credit card debt is not. Fed data reveals that the 6.4% of credit card delinquencies in 2023 grew more than 59% from 2022 as consumer debt expanded to $17.5 trillion, including a 3.6% increase in credit card debt from 2022 to over $1.1 trillion. A financial literacy class would have taught that credit card debt is the most expensive, with the typical credit card interest rate on delinquent balances now approximately 21.5%—increasing from 14.5%—since before the Fed began increasing interest rates to fight inflation.
There are six bills in the state legislature addressing financial literacy as a requirement for high school graduation. For the benefit of regional household budgets, it’s time that one is implemented.