Financial Literacy

A little while ago I met an individual who proceeded to discuss with me her plans on purchasing a house within two years. I know not whether this individual was attempting to leave an impression or if this was a genuine quest. I can only admit that I was far from impressed and quite frankly, was quite taken aback by how lacking this individual was in financial literacy. This was no recent college graduate with fresh new plans for life after college but one, who from her title, I deduce actually holds a respectable position as a director in a non-profit, and one who is on track on completing post-graduate studies, one who is educated but also unfortunately, a bit behind in managing her finances.

To summarize the discussion, there was much knowledge lacking in the basics of how a home is purchased and how financing works. While I openly admit I am no expert in the financial or real estate fields, terminologies such as ‘mortgage’, ‘adjustable rate mortgage’, or ‘down payment’ escaped my audience’s understanding. Her belief was that the real estate brokers and loan consultants would explain to her everything she needed and everything she did not.

This belief, while holding some truth to it, is partially what got millions into the current financial crisis. While there are good, honest brokers and consultants around, there are just as many more who are in for a quick buck. You will hear all that you need to hear in order to make the transaction legal; but that is just about all you will hear about too. Mortgage brokers are sales people despite their business title. Their job is to sell. Arguably, they may have a moral obligation to tell you what risks you face in due time; but as far as their job really entails, they do not. The ultimate responsibility lies in the individual for completing due diligence. After all, the only one who gets hurt in the long run, is the individual.

All in all, I am guilty for having discouraged my audience on her lofty dream of purchasing a home in the San Francisco Bay area but I do hope that she realises that there is much she needs to learn before taking a plunge as big as a home, especially here in the SF Bay area where prices are well above a middle class family’s means. Any misstep can and will put one into financial bankruptcy.

Dream lofty dreams. But tread carefully.