Friday, July 22, 2011

The Significance of Financial Literacy

A report recently published by the Urban Institute highlights the importance of financial literacy programs in providing education to low income families on mortgage rates and assisting in building adequate credit.

Being financially literate allows for families to make informed financial decisions and increases the potential for establishing and maintaining good credit. Good credit enables families to borrow at market interest rates; allowing for substantial purchases (for instance houses and cars) to be more affordable, while simultaneously reducing the chances of mortgage delinquency and foreclosure. As emphasized in the report, the influence of financial education programs could save families1-in-every-4 dollars they spend on mortgage payments while accelerating their accumulation of home equity and potential wealth. There are several federal initiatives aimed at supporting families in their efforts to become more financially literate and secure. HUD’s Family Self-Sufficiency program encourages the creation of community partnerships to provide local, comprehensive services for individuals living in public housing or receiving Section 8 vouchers. The services provided through the FSS program assist residents in achieving economic independence through employment opportunities, the provision of work supports and homeownership counseling. Other federal efforts include HHS’s Assets for Independence, a program that saves earned income in special-purpose, matched savings accounts called Individual Development Accounts (IDAs), while additionally incorporating financial counseling and education to participants.

With 20 different federal agencies offering over 50 programs directed toward financial literacy, and the formation of the multiagency Financial Literacy and Education Commission in 2003, states have a number of resources to support their efforts to promote financial literacy and family economic security. Additionally, these resources provide great opportunities for states to save money; research states that financial education programs are cost effective because they reduce state budget deficiencies through lowering individuals’ delinquency.

Supporting financial literacy programs is a great way for policymakers to help low-income families become financially secure – while also contributing to the creation of a solvent and stable local economy.

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