I WISH I HAD LEARNED THAT
I Wish I Had Learned That” – the importance of financial education in schools
With financial education not widely taught in schools, many Americans are becoming young adults with significant gaps in their personal finance knowledge - like what is required to buy their first home: calculating down payments and understanding the range of costs and considerations beyond monthly mortgage repayments.
First Merchants has surveyed 1,000 American adults aged between 18 and 34 from across Michigan, Illinois, Ohio, and Indiana to identify what financial knowledge first-time home buyers feel they are missing and what they wish they had learned at a younger age.
The results discovered that more than half of American adults aged between 18 and 34 do not feel confident managing their personal finances and 80% believe better education could have prevented financial related anxiety and stress.
“By promoting the importance of financial education in schools, the next generation can be better informed and by identifying existing knowledge gaps, First Merchants can help first-time buyers to access advice relevant to their financial situation.”
Credit Confidence
On average, more than half of the respondents (51%) said that they take or use credit daily or weekly to make purchases. In Illinois, this percentage increases above the national average to 57%.
This regular use aligns with the level of confidence that is found when applying for personal (64%) or vehicle loans (63%) without financial advice. Whether through need or convenience, personal loans are a regular part of daily life for many and this familiarity contributes to building confidence.
However, these confidence levels drop dramatically when the loan types become more specific:
| Loan type | Survey response |
|---|---|
| Bad credit loan | 34% responded confident |
| Unsecured loan | 36% responded confident |
| Credit creator loan | 40% responded confident |
| Home improvement loan | 42% responded confident |
| Home equity loan | 37% responded confident |
| Home equity line of credit | 38% responded confident |
| Certificate of deposit | 44% responded confident |
| Mortgage | 47% responded confident |
“Financial confidence is vital for effective decision making. In Ohio, one of the states First Merchants serves, this figure is higher than average, with 59% admitting they do not feel confident.
With such large drops in confidence around home and mortgage loans, potential first-time home buyers need support bridging knowledge gaps.
Improved financial education in high school could also help to explain homeownership, making the process and requirements easier to understand and pursue.”
Information sources
51% of respondents said they did not feel confident and needed to seek help and guidance when making financial decisions. However, there is no consensus on where to get this information. Even after receiving expert advice from mortgage advisors or other regulated sources, almost half still felt they did not have the foundational level of financial knowledge required to fully understand and use the information to make decisions (49%).
Alarmingly, 33% said they would use unregulated sources when seeking financial information, often looking towards celebrities and influencers ahead of professional guidance. Unsure where to go, many stick to what they know - more than half (51%) said they would ask their family or their current bank (43%) for advice.
“While the internet does have some valuable resources, the risk of financial misinformation could have a significant impact on an individual’s financial situation. It is important to ensure that advice comes from regulated sources such as banks or independent financial advisors.”
Contact First Merchants to schedule an appointment or use our range of financial calculators to answer your questions.
Digitization – convenience creating confusion
Personal finances are continuing to move more online, with increased digitization and automation of banking services. This has a lot of benefits in terms of consumer convenience, but for those who are unsure and have questions, the opportunity to speak in person with advisors is becoming limited. As branches close and transactions are increasingly conducted via apps it is becoming harder to receive personalized, expert advice and ask questions.
67% of respondents said it was more important to them to have trained advisors rather than chatbots, even if this was via telephone or instant messaging. Human interaction and the ability to ask for clarification are essential for making the correct decisions and there is an urgent need for improved access to authoritative experts that can provide resources and support.
“With insufficient financial education in schools and digitization reducing the opportunities to speak with experts, First Merchants’ focus on localized banking means that our customers are able to make appointments to visit a branch and have their questions answered.”
Importance of financial education in schools
According to Statista, 2021 saw 26 million mortgage applications in the US, with around 15 million resulting in mortgage originations. With so many applications being made, it is likely that the majority of people will at least consider applying for a mortgage at some point in their lives, underlining how crucial financial education could be to improving the lives of young people.
With a strong foundation of knowledge on which they can make good decisions, individuals can assess their situation and decide if they want to become homeowners at a younger age, rather than letting uncertainty delay their plans.
The importance of financial education goes beyond simply making strong decisions as the results can have a significant impact on mental health. 80% of respondents stated that better financial education could have reduced or prevented the financial-related stress or anxiety that they have experienced.
What do you wish you had learned?
| Budgeting and managing monthly expenses | 48% |
| Debt management and support options | 40% |
| Loans and the differing options available including the general terms and implications of each | 40% |
| Savings and the differing options available | 39% |
| Retirement planning and the differing options available | 35% |
| Securing a mortgage and how it is calculated | 33% |
The table above shows responses to the question “Which personal finance-related topic do you wish you learned at school?” These findings highlight two types of regret:
First is that young people have started earning money but have not been taught how to budget, resulting in unsuitable loans and debt issues. This can be due to a learning curve, but the percentage of people affected by personal debt issues could be greatly reduced if they had been provided with suitable financial education on basic domestic financial management when they were at school. For a prospective first-time home buyer, making these budgeting mistakes could impact credit ratings and the amount of savings available to put towards a deposit, making homeownership more distant than it needs to be.
The second type of regret is more long-term. Roughly one-third third of respondents wish they had been given more advice about savings and mortgages. For young people, pensions and savings are far from their mind, but understanding how they work and the importance of setting up retirement plans and savings could have a significant impact on ensuring a strong financial future.
“First-time buyers and homeowners of the future are clearly missing out on a level of financial guidance that is integral. Education should play a much larger role in promoting financial knowledge – not just in schools but making sure that access to trusted and regulated financial advice and information is more clearly signposted in the way we do at First Merchants branches and via our website .”
Make an appointment to visit a First Merchants branch and speak with an advisor about personal finances if you resonate with this study.
Request a financial wellness session or series at your school or workplace by contacting us today.
