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July 09, 2019 Tuesday 01:50:12 PM IST

Financial literacy counts

Teacher Insights

Growing up in a community with or without banks or financial institutions has a long-term effect on how you build and manage credit, according to a new Iowa State University study. Early exposure to local banking increases financial literacy and trust. The research shows individuals who grow up in what are essentially ‘financial deserts’ are slow to apply for credit and as adults have lower credit scores and more delinquent accounts. The research is published in the Journal of Financial Economics

People who grow up in community with no or few financial institutionsare 20 percent less likely to have a credit report, have 7 to 10 point lower credit scores and have 2 to 4 percent higher delinquency rates.

It takes approximately 17 years to overcome the negative effect on credit scores and 12 years to reduce delinquency rates. Researchers also looked at data on mandated financial literacy training in high schools across different states and found that formative exposure to financial markets improves financial literacy and trust in financial institutions.


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