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Add A New Role To Your Job Description: Financial Literacy Mentor

Educating borrowers has potential to pay dividends down the road

Mary Kay Scully headshot
Mary Kay Scully
Financial Literacy Volunteer

We are living in the most connected era of human history. Nearly everyone has access to all the information they could ever want or need on the internet via smart phones or laptops. Despite this, there is still a significant need for greater financial literacy among today’s adults.

Look at the P-Fin Index, for example. An annual barometer of financial literacy among U.S. adults, the index includes 28 questions that examine eight functional areas of financial knowledge, including borrowing and saving. The 2023 survey found that, on average, U.S. adults correctly answered only 48% of the study’s index questions and that Gen Z, followed by Gen Y (often referred to as millennials) performed worst, answering only 38% and 45% of questions correctly respectively.

With the average age of a first-time homebuyer falling squarely in the millennial age range, according to the National Association of REALTORS (NAR), loan officers have to be prepared to fill the gaps in their first-time home buyers’ financial knowledge.

Why It Matters

Greater financial literacy is, understandably, linked to greater financial well-being. In the 2023 P-Fin study, respondents with a very high level of financial literacy consistently had better financial well-being than respondents with a very low level of financial literacy. In fact, those with a very low level of financial literacy were found to be more than four times as likely to have difficulty making ends meet, nearly three times as likely to be debt constrained, and more than four times as likely to lack emergency savings sufficient to cover one month of living expenses. With greater financial literacy and greater financial well-being, homebuyers are better positioned for sustainable homeownership.

The Need For SMEs

Buying a home is often the largest financial decision of someone’s lifetime. First-time homebuyers, especially, need someone who is educated and confident and can support them through the homebuying journey. Some younger first-time buyers may lean on their parents or another trusted source, while others do not have that luxury.

Spending so much money is daunting and borrowers want to be sure they are making the best financial decision. It’s important that no one assumes their borrowers are entering the mortgage process with all the knowledge they need. Even if they’ve bought a home before, they may still have gaps in their understanding of the mortgage process. It’s a critical skill to be able to assess the borrower’s financial knowledge and help to fill any gaps to ensure their homebuyers are fully educated about the process and the financial commitment they are making.

What Loan Officers Can — and Should — Do

Loan officers (LOs) can, and should, be the expert that buyers need. The loan origination process is more than just taking an application, it’s being a guide and a resource throughout the homebuying journey. LOs need to be able to educate buyers about all aspects of the mortgage process, including the different loan products available, expectations for down payments and closing costs, earnest money and escrow, credit scores and their impact, mortgage insurance, and the list could go on.

Homebuyer education courses and resources are a critical tool, but loan officers should be prepared to assist their borrowers, as well. Every borrower needs someone that can answer their questions and talk through decisions with them.

The time that LOs take to educate borrowers has potential to pay dividends down the road. By serving as a subject matter expert and trusted resource, LOs are not only helping the buyer make an informed financial decision, but they are building a relationship. If the buyer sees their LO as a valuable resource and financial mentor, they can be more likely to come back when they need additional loans or when it is time to buy another home. Additionally, borrowers that have a trusting relationship have greater potential to refer their friends or family who also need some additional education during the homebuying process.

LOs serve a critical role not just in getting borrowers into homes, but helping them make well-informed financial decisions during the process. Serving as a subject matter expert and trusted advisor can assist borrowers of all ages and financial backgrounds. According to Vince Shorb, the CEO of National Financial Educators Council (NFEC), “Most college graduates spend close to 16 years developing skills that will allow them to get a high-paying salary. However, these people typically spend little to no time learning how to save and invest their money.”

Financial comprehension is key for loan officers who want to succeed and see their borrowers do the same. And it’s a critical component of helping your homebuyers attain sustainable homeownership.

This article was originally published in the NMP Magazine October 2023 issue.
Mary Kay Scully headshot
Mary Kay Scully

Mary Kay Scully is the Director of Customer Education at Enact, leading the development of the company’s customer education curriculum. The statements in this article are solely her opinions and do not necessarily reflect the views of Enact or its management. 

Published on
Sep 27, 2023
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