More Financial Literacy Instruction Would Let Cities Claim a Pot of Gold
By Right About Money Staff Report
March 9, 2017
Cities in America and across the world are leaving hundreds of millions of dollars on the table by failing to support programs that would lift the financial literacy levels of individuals, new research shows.
New York City alone forfeits up to $646 million of revenue annually due to things like unpaid property taxes and utility bills, and the general inability of individuals to purchase goods that would boost the local economy, according a report from the Urban Institute.
The study looked at 10 U.S. cities: Chicago, Dallas, Los Angeles, Columbus, Seattle, San Francisco, New York, Houston, New Orleans and Miami. The cost of individuals’ financial illiteracy to New Orleans is $8 million to $18 million; to Chicago, $68 million and $157 million; to San Francisco, $24 million to $54 million. Other cities experience similar lost income.
Financial illiteracy, in this case, is defined as financial insecurity—or a lack of savings. They are not the same thing, of course. But financial illiteracy often results in poor savings. Some states have begun to recognize the costs of inaction, and are moving to step up financial education programs.
Families with savings of less than $2,000 are more likely to be evicted and unable to pay their utility bills, and to suffer a serious financial setback when hit with an unexpected expense from, say, illness or a car repair. Yet even a small savings cushion can make a difference. Families with as little as $250 saved are less likely to be evicted or miss a housing or utility payment than those with zero savings, the study found.
Savings are as important as income: low-income families with savings of $2,000 to $4,999 are more financially resilient than middle-income families without savings, the study found.
According to Urban Institute Senior Research Associate Diane Elliott, here are five major areas of loss to cities due to individuals’ low levels of financial literacy:
Ath Property tax revenue falls Financially insecure homeowners are less likely to pay their property tax. In Chicago’s 2016 budget, 18% of city revenues come from property tax. A large portion of that is at risk, as 62% of homeowners are considered financially insecure.
Tendō Utility bills go unpaid When residents can’t pay their heating and electric bills utilities companies look to taxpayers to make up the shortfall.
http://thelittersitter.com/wp Services for homeless add to costs Services for evicted families reach tens of thousands of dollars per year in even small cities.
Homeownership falls Poor savings rates go hand-in-hand with poor credit scores. And people with poor credit scores are far less likely to qualify for a home purchase. Home ownership underpins a city’s economic health. It generates direct tax revenue and also encourages residents to invest in their communities. In seven of the 10 cities in the Urban Institute study a third or more residents were subprime borrowers, making homeownership nearly impossible.
The local economy takes a hit Financially insecure residents have limited ability to build a small business or spend on discretionary items. They have almost no ability to borrow—at least not a reasonable rate. This deprives the local economy of investment and tax revenue.
Financial education is in everyone’s interest. It helps the financially insecure find stability, and leads to economic activity that can help keep a city’s costs—and everyone’s taxes—down.
More on financial education battles in the states: