Economists' Outlook

Housing stats and analysis from NAR's research experts.

The Impact of Financial Literacy on Homeownership: Enhancing Financial Literacy Skills

Financial literacy is the “ability to use knowledge and skills to manage financial resources effectively for a lifetime of financial well-being.”[1]  Yet despite its importance, financial literacy can often seem like the elephant in the room of many households. The topic of money and wealth is addressed in a variety of ways for different cultures. For example in some households, there are little to no conversations about money, or how to manage one’s income and financial assets. In other households, families support each other financially and pool their resources to generate and build wealth. Finally, there are households that have detailed conversations and plans of passing down generational wealth.

Ideally, parents should teach their children how to manage money or how to improve our economic well-being. However, without parental guidance, it takes personal initiative to learn, or possibly a mentor to pass on the ins and outs of money management. If parents or peers understand and practice sound financial management, it is more likely for children to have good financial habits and knowledge of the wise use and investment of resources. Those who inherit money are not always destined to keep it, but they will have a head start at obtaining more or maintaining it over those who do not.

Homeownership is one of several means of building wealth, but owning a home takes financial preparation in terms of building up savings and developing creditworthiness. 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.

Let’s take a look at important financial literacy indicators and how a low level of financial literacy may be contributing to the current wealth gap, the variation in homeownership among ethnic groups, and the importance of financial literacy in addressing these issues. We will also look into homeownership rates among various ethnic groups, along with average family wealth and average retirement saving.

Enhancing Financial Literacy Skills

Making financial literacy classes a mandatory component of education would be a step in the right direction to address this issue. Having financial literacy classes for potential homeowners would be a good investment of time and resources. Homeowners could not only learn to improve their own family finances, but also be able to upgrade their earning potential as investors.  Non-owners already believe that their level of financial literacy affects their ability to qualify for a mortgage: in the first quarter 2018 HOME report, 16 percent of non-owners feel that they would have difficulty in qualifying for a mortgage due to a lack of financial knowledge, and 13 percent would not know the first step in the process.

For readers currently in school or college, it is highly recommended to sign up for a financial course. If you are out of school, there are plenty of online courses and resources available to improve financial literacy.

Strategize on how money can work for you, and make a plan so you can invest in your and your family’s future. Assess your current financial situation to see where you are. Come up with a budget of your expenses so you can see how the money is coming in and where it is going out. Are you able to save money every month? Are you paying yourself a percentage of your income when you are paid? Are you paying down your debt? Try to find places in your budget where you can cut an expense here or there and see how that might create some wiggle room in your budget.

For REALTORS®, the national association introduced in 2018 the Center for REALTOR® Financial Wellness, a new resource designed exclusively to meet the specific financial planning needs of REALTORS®. The program includes education materials and resources for wealth building, business planning, and investing in real estate.

There are countless other resources, from online pages to local and university libraries, as well as your own social network. Ultimately, taking personal initiative will always be best when it comes to financial literacy.

Concluding thoughts

Owning a home can be a great long-term investment. In some cases, the same monthly rental payment can be used to pay a mortgage while equity is being built over time. Equity in a home allows families to have saving flexibility, as well as leverage for future investment opportunities. Rents have a tendency to grow 3 percent annually while mortgage payments (e.g. 30-year mortgages) are usually fixed. Most non-owners do want to buy: in the latest Aspiring Home Buyers Profile, 84 percent of non-owners want to buy a home in the future.

For many consumers, it may seem more financially rewarding to have their own property value increase rather than to have monthly payments increase, all other factors being equal. This could provide potential homeowners more saving capabilities, financial security, as well as an asset to sell or pass down to heirs. The owning versus renting argument has been popular over the years and some research points out that the renter would only be as well off as the owner if they were actively saving the difference between the lower rental payment and higher monthly mortgage on other financial investments. This highlights the importance of having a plan and being financially literate.

For more information regarding school aged children and young adult financial literacy, please see

[1] This Council was established by President Bush in 2008. Financial literacy is defined in the President’s Advisory Council on Financial Literacy, 2008 Annual Report to the President Executive Summary, p. 10 ( This Council was renamed as the President’s Council on Financial Capability and was in place from January 28, 2010 through January 28, 2013 (