Forty-four percent of American adults grade their knowledge of personal finance with a C or lower and good financial skills are important in a time of high inflation.
WalletHub released its report on 2023’s Best & Worst Cities at Money Management.
The personal finance website compared more than 2,500 cities based on 10 key indicators of money-management skills. Data includes median credit score, average number of late payments and mortgage debt-to-income ratio.
Cupertino, Calif. is the best at managing money, followed by Lexington, Mass., Scarsdale, N.Y., Los Altos, Calif. and Chevy Chase, Md. McLean, Va. is no. 9.
The cities with the worst money management skills are Canton, Miss., Bastrop, La., Maple Heights, Ohio, Fairburn, Ga. and Ruston, La.
The lowest mortgage debt-to-income ratio is 121.14 percent in East St. Louis, Illinois, which is 8.9 times lower than in Ewa Beach, Hawaii, the city with the highest at 1,083.35 percent.
Student loan debt-to-income ratio is lowest in Deer Park, N.Y. at 6.95 percent, 14.2 times lower than in Carbondale, Illinois, where the ratio is the highest at 98.37 percent.
Mercer Island, Washington has the lowest share of residents delinquent on debt at .16 percent, 81.1 percent lower than in Jackson, Miss., where debt is 12.98 percent.
Experts provided WalletHub with their opinions on if financial skills should be a mandatory part of curriculum taught in high schools.
“In my opinion, yes. I think that high school students should be required to learn about topics that are part of a subject that we call ‘personal financial literacy.’ Things like establishing and maintaining a personal budget, viewing and monitoring a personal credit score, responsibly building and managing credit through the acquisition of loans and credit cards, and understanding how to create and achieve long-term wealth-building goals,” Dr. Scott Collins, an Associate Clinical Professor and Director of One-Year Master of Accounting (MAcc) Program at Pennsylvania State University, said.
Dr. Robert Haywood Scott III is a professor of Greenbaum/Ferguson/NJAR Endowed Chair in Real Estate Policy at Monmouth University, and he agrees.
“I think financial concepts could be covered and reinforced in a variety of classes, such as math, that makes it applicable to students. I once gave a presentation to a group of state advocates and educators advancing financial literacy in schools and during the question-and-answer session someone stated they were a superintendent and that she agreed we need more financial literacy in schools; however, she said it is very difficult finding qualified people to teach those concepts. She is right that it is not enough to put the material in the curriculum, you need qualified people who really understand personal finance to teach it. Those people do not necessarily need to be finance professionals. Many regular people have excellent money management skills. But students need access to these people,” Scott said.
According to Thomas Gilbert, an associate professor at the University of Washington, the most common mistake individuals make when managing money is that they don’t save enough and don’t start saving early enough.
“Saving for retirement should start with one’s first job, with an IRA account. When an employer offers a retirement program with matching, one should always take it and max it out every year. And the second related mistake, when people look at their investments in the stock market, is that they sell after the market falls and start buying after the market has risen. That is called trying to time the market and academic research has shown that even professional money managers cannot do it, so why do retail investors think they can? Most of us invest for the long run, so as the markets go up and down, the best advice is to not touch anything and keep saving, keep investing. Third, the average household has far too much faith in real estate as an investment: buying one’s home is not a sure bet, and net of all costs and interest and taxes, the annual rate of return on home purchases is much lower than people think. As the saying goes, do not put all your eggs in one basket,” Gilbert said.
Dr. Claire Rosenfield, Assistant Teaching Professor and Assistant Area Director of Finance at the University of Kansas, said individuals overlook their opportunity costs.
“Sometimes trained financial professionals pitch to existing and prospective investors using select performance metrics in absence of any benchmarks,” Rosenfield said. “We see people make occasional splurges, like on technology upgrades, or daily splurges, like on coffee habits, without serious consideration of how else they could spend their money to extract more benefit from it. People frequently ignore the foregone benefit of extra compounding periods gained by starting to save earlier in their adulthood rather than later. People also commonly overlook the true cost of early-adulthood indebtedness, which can have detrimental lifestyle effects for at least a decade and then erode the possibility of capitalizing on compounded savings that could have otherwise taken place.”
Scott said that for individuals with extra money, they should find high-interest savings account for an emergency fund.
“With emergency funds, I am less concerned with interest earned than accessibility; however, if someone has some flexibility there are excellent rates on a variety of certificates of deposits (CDs). If there is a small possibility you might need the money earlier than the CD’s maturity date, then look for shorter-term CDs and/or ones that will not penalize you for early withdrawal. If you absolutely do not need the money, then Roth IRAs are a great investment option for many people. And for those with children, 529 savings plans can make sense. Everyone’s financial situation is different, which is why educating yourself is so valuable. Finding legitimate sources of information, knowing your financial reality, and seeking advice from many sources are how all of us can make better financial decisions,” Scott said.
A period of high inflation presents challenges for individuals to protect their purchasing power.
However, if they have invested in assets that could be repriced higher to catch up with inflation (e.g., raising the rent on investment property; stocks of companies that can raise prices without hurting demand for their goods or services) or can demand much higher wages because of their skills/expertise, then they could better insulate themselves from the ill effects of inflation,” Alice Tsang, CFA, Professor of Finance at the Taylor University, said.