I came across a recent study that found that more than half of Americans have less than $1,000 in savings. Even more disturbingly, 34 percent of Americans have no savings at all.
That means more than one-third of consumers will be unable to buy a new tire if they accidentally drive over a nail! Others may be able to handle a small unexpected expense, but will have to turn to credit to deal with a major financial setback.
While it’s easy to blame those statistics on poor money management or tough financial times, I think it’s reflective of a greater problem - the need for more financial education in our country. This study also tells us something about our industry. If we can’t help consumers become more financially stable, we’ll have a smaller pool of future homebuyers and homeowners to work with. That would be devastating to the mortgage industry in the long run.
Consumers with less than $1,000 in the bank are less likely to qualify for a mortgage. Not only that, but homeowners with less than $1,000 in savings are less likely to make needed repairs on their homes and more likely to fall behind on paying their mortgage if a financial crisis occurs.
Yes, there are those who have experienced a run of bad luck. But there are many people who make enough money to take care of all of their bills and then some; yet, instead of putting money away for a rainy day, they spend it on items that will bring them instant gratification. Many don’t realize that the simple act of saving will not only help them to be better prepared for emergencies, but will allow them to create a more stable and prosperous future through homeownership, investing and other wealth-building initiatives.
Many people want to save, but they believe saving is impossible because they don’t understand how to craft a budget that works or they don’t know how to put an automated savings plan in place.
We must expand our vision of financial education to go beyond simply helping people when they are ready to buy a house. I always say, if you went to a doctor only once in your lifetime, you wouldn’t know about health problems until they were too far-gone to treat.
In that same spirit, financial education should start long before consumers begin the homebuying process and continue even after they are homeowners so they can identify challenges when they still have enough time to fix them and remain financially healthy.
We must look for ways to educate consumers financially throughout their lives so they are ready to buy a house when the time comes, and they’re equipped to be homeowners for life. When we do this, we’ll find that $1,000 no longer limits our customers, but rather empowers them.