Economists' Outlook

Housing stats and analysis from NAR's research experts.

The Impact of Financial Literacy on Homeownership: Student Loan Impact

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.

Student Debt Impact

Historically, education provided a path for lower income households to move up the socio-economic ladder. However, with the rising cost of education over the past few decades, that path has become less clear. In the study The Road to Zero Wealth[2] the authors stated, “Since the mid-2000s, black families, on average, have carried more student loan debt than white families. Government cash assistance programs do not also help in wealth building. Low-income families benefit from government programs, such as food and cash assistance, but most of these programs focus on income, and do not encourage wealth building”.

The burden of student debt has increased and become an obstacle to homeownership. Based on data from the National Association of REALTORS®.

For close to one-in-five Americans the level of student debt exceeds $100,000.

Based on NAR survey data, 32 percent of respondents from a national sample indicated that they defaulted or forbore on their student loans.

Student debt has clearly impacted consumers’ economic decisions. As NAR’s data show, for over 75 percent of consumers, their student debts impacted their decision to purchase a home. Similarly, for over 50 percent of consumers there were added financial pressures to take a vacation, purchase a car, continue with their education, or change their living situations due to existing student debt.

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

View part three of this series on Enhancing Financial Literacy Skills.

[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 (

[2] The Road to Zero Wealth: How the Racial Divide is Hollowing Out  America’s Middle Class, Prosperity Now Institute for Policy Studies , September 2017,