Lack of Financial Literacy: A Cause of Subprime Mortgage Delinquency?

Abstract

The lack of financial literacy is described as the inability to understand finance and consequences of financial decisions. In making these commitments, it is typically expected that consumers who choose to participate, should possess the basic skills and knowledge needed to assist them in arriving at a beneficial financial state. However, the imperative need for arming consumers with the right tools and knowledge base, surfaced after a drastic increase in subprime mortgage delinquencies, which was believed to have played an immense part in the underlying problems that led to the 2008 economic downturn. As a response to this national dilemma, the U.S. government steamrolled a program aimed at increasing awareness of financial literacy for citizens of the United States. The objective of this research was to investigate the length at which the financial participation of consumers was able to contribute adversely to the nation’s economic recession. It was conducted with the identification of similarities in U.S. ZIP Codes susceptible to mortgage delinquencies and high foreclosure rates. In addition, a review of empirical data was used to examine 2010 Act, passed to protect consumers’ financial interests and to promote financial education throughout the country. It is also a medium by which financial markets can thwart undue increase in subprime mortgages, subsequently, eradicating the origin of foreclosures and a chance for citizens of the United States to contribute towards reducing the nation’s deficits.