Tag Archives: consumer literacy

Student Debt And Homeownership

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The National Association of Realtors, along with SALT, a consumer literacy program provided by American Student Assistance, released the results from a joint survey about student debt and homeownership. They found that “Seventy-one percent of non-homeowners repaying their student loans on time believe their debt is stymieing their ability to purchase a home . . ..” They have also produced a cool infographic to illustrate their main points:

  • Nearly a third of current homeowners (31 percent) in the survey said student debt is postponing plans to sell their home and purchase a new one.
  • A little over a majority of those polled (52 percent) expect to be delayed by more than five years from purchasing a home because of repaying their student debt. One in five anticipates being held back three to five years as well as over 60 percent of baby boomers. Not surprisingly, those with higher amounts of student loan debt and those with lower incomes expect to be delayed the longest.
  • Mirroring other recent data on young Americans being more likely to live with their parents than in any other living situations, almost half (46 percent) of young millennials polled currently live with family (both paying and not paying rent).
  • 42 percent of respondents indicated student debt delayed their decision to move out of their family member’s home after college.

I am not convinced that SALT President John Zurick is right when he says, “It is imperative to the nation’s economy that we find immediate and practical solutions to financially empower the 43 million Americans with student debt.” I think SALT and NAR are also overselling their findings somewhat in their press release headline, New Evidence Links Student Debt with Inability to Purchase a Home, because the survey reports subjective beliefs and does not offer any kind of baseline from which we can measure this current snapshot of consumer sentiment.

That being said, there has been a lot of concern about the relationship between student debt and household composition recently. It is certainly worth trying to understand the relationship between all different forms of debt and how they expand and limit choices available to households. And whatever the limitations of this NAR/SALT study, I have no doubt that the system for financing higher education needs an overhaul for its own sake as well as for the impacts it has on other choices that households make.

 

Financial Literacy Rehash

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The Consumer Financial Protection Bureau released its second Financial Literacy Annual Report. In blogging about last year’s report, I noted that the CFPB assumed that financial education worked more than research had shown it to work. Unfortunately, this report seems to be mostly a rehash (in many cases an extensive word-for-word rehash) of last year’s (pace Senator Walsh). From what I could tell, the only significant new financial education research that the CFPB has undertaken since last year is its “rules of thumb” project.

“Rules of thumb” are a decision-making and education technique that uses practical, easily-implemented guidelines for making decisions. Existing research has found rules of thumb to be a successful technique for improving decision making in many areas, and more successful than comprehensive education in some instances. Thus, rules of thumb could be a cost-effective method to improve consumer decision making. However, little research exists examining the effectiveness of rules of thumb for financial decision making.

Accordingly, in 2014 the Bureau began a research project to study the effectiveness of rules-of-thumb-based approaches aimed at helping consumers decrease their credit card debt. Rules-of-thumb-based education may be particularly appropriate for improving consumer literacy about credit card use, as credit card decisions are repetitive and frequent. We have finished the first phase of the project to understand how to create rules of thumb, when they are most useful, and how they can be implemented to ensure maximum success. The second phase of the project will test a set of rules of thumb aimed at helping consumers decrease their credit card debt. When we release the final results, which are expected in 2015, we expect that this project will increase knowledge of the efficacy of a rules-of-thumb approach to financial education both within the CFPB and among a range of external stakeholders who serve consumers. (72-73, footnote omitted)

This seems like a great project for the CFPB to undertake. But the rest of its efforts to improve its understanding about the efficacy of financial literacy leaves me under, underwhelmed, particularly because the rule-of-thumb project is limited to just one consumer financial product, credit cards.