Improving financial literacy is the key to protecting your assets and keeping your home. Financial education is also important for young people as it helps them to make sound money decisions, avoid eviction and thus prevent homelessness.
How Financial Literacy Helps
Multiple studies have shown that literacy helps decrease poverty, which is an underlining cause of homelessness. Groups that are more often affected by poverty include single-parent families, those relying on government support, women, unemployed persons, members of Indigenous communities, and single people over the age of 65. Groups that are at risk of poverty are also more vulnerable to homelessness. Circumstances of poverty that are vulnerability factors for homelessness include social exclusion, living in a public housing unit, disability, mental disorders, poor physical health, lack of education, multiple debts, and insufficient income or lack of income. While falling sick or suffering from mental illness are factors beyond one’s control, others such as increasing income and getting rid of debt are factors that people can control. This is provided that they have the skills and knowledge to improve their financial security and wellbeing. This is also where financial literacy can help as it enables people to make sound money decisions.
Financially literate people borrow only what they can afford, have an emergency fund for a rainy day, avoid spending splurges, live within their means, and grow their money. The benefits to mastering basic financial concepts are plenty, from decreasing stress and anxiety associated with poor decisions to avoiding predatory lenders and falling into a debt spiral. Unmanageable debt, coupled with divorce, loss of employment, or other major events, makes people vulnerable to homelessness.
Young People and Homelessness
A 2018 study showed that at risk youth experienced 65 percent decline in eviction rates once they learned how to avoid scams, prioritize debts, and manage money. Financial literacy education helped 45 percent of participants in the study to avoid missing bills and bank charges. Some 22 percent of participants also learned how to borrow safely and avoid loan predators. As a result of improved skills and competencies, 35 percent started budgeting, and 54 percent are now saving. In addition, 27 percent of participants shared that they were more confident in how they managed their personal finances. All participants in the study were either in sheltered accommodation or in care, aged 16 – 25. The results show that being well versed and knowledgeable helps young people to manage their money better and enables them to become self-sufficient.
Another study shows that poor financial literacy is a particularly serious problem among homeless people. Participants in the study were unemployed and not enrolled in a training or education program. They didn’t know how to comparison shop for loans with competitive interest rates and terms, lacked experience with managing household finances and paying bills, in particular, and didn’t know how to open a bank account. This confirms the results of recent UK-based studies which show that homeless young people have poor financial literacy, numeracy, and literacy skills which help people to meet their financial needs and avoid major life crisis.