Homebuyers: How does your financial literacy measure up?

All about the money

If you fall in line with the findings of a recent financial literacy study, you may want to consider studying up before you buy a home. According to the data, a large chunk of Americans aren’t familiar with some of the most basic financial terms — many of which play a big role in both buying and owning property.

Where financial literacy is lacking

The Knowledge Academy recently analyzed survey findings to determine what financial terms Americans are most confident about — and which they have the least knowledge around.

According to the findings, most Americans know the basics. Nearly 90 percent know what a savings account is, while 76 percent know about credit unions. Another 70 percent or more understand the terms “net worth,” “asset,” “liability” and “401(k).”

A plain English guide to terms you’ll hear from your loan officer

But overall, The Knowledge Academy found that only 16 percent of American have a high level of financial literacy. Some of the terms they’re least confident about? That’d be “premium,” “amortization” and “liquidity.”

From a homebuying standpoint, both “premium” and “amortization” play a big role in how a buyer’s monthly mortgage payment is determined.

Other terms Americans are largely unfamiliar with include “mutual fund,” “Roth IRA,” “capital gains and losses,” “annuity,” “endowment,” “stock options,” “asset allocation” and “Index fund.”

Does checking your credit score hurt your credit?

Don’t know the terms? Don’t worry.

According to Freddie Huynh, VP of credit risk at Freedom Financial Network, the study’s findings are “sobering.”

Still, it’s not all bad news if you don’t know common financial jargon. As long as people “demonstrate behavior that is conducive to financial health,” they should be in a good place, he said.

“Knowing the meaning of financial terms can be very different than making decisions or living a lifestyle that promotes financial health,” Hunyh said. “Think of it as a financial analogy to being book smart vs. street smart. One doesn’t need to know the definition of ‘Bitcoin’ to be in a position of financial health, but one better live within their means and have saved a certain amount in order to be in a position of financial health.”

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