Q&A of the Day – How Much is Good Credit & Financial Literacy Worth?

The average Floridian with poor credit must work an additional 2.5 years to simply account for added expense compared with someone who has excellent credit.

Episode Transcript

Speaker 1 (00:04):
Your questions, Brian's answers. It's time for today's Q and
A of the day. This is the Brian Mud Show. Yeah,
Today's Q and A. How much is good credit and
financial literacy?

Speaker 2 (00:16):
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(00:37):
two preset. While you're in there, look for a little
microphone button. See it, tap it You may lay it
out a message right there, maybe a topic or question
for a future Q and A. Today's said this Brian
some time ago, I recall you having discussed what the
value of maintaining good credit was over the course of
a lifetime, or something to that effect. I'm asking because

(00:57):
I'm currently working on financial education with my soon to
be eighteen year old son, who listens to you as well.
By the way, thanks well, thank you. I love hearing it,
love hearing it. So financial literacy, or the lack thereof,
one of the costliest issues in society today, and it's

(01:18):
a problem for most of our society. According to the
annual t IAA Institute Personal Finance Study, what percentage of
adults are currently financially literate? Only forty eight percent. Only

(01:41):
forty eight percent. This includes only thirty eight percent of
adults understanding the basics of investing, only thirty nine percent
understanding insurance, and only forty four percent understanding the basics
of earning, income and taxation. And that one in particular,

(02:06):
All these have enormous implications for your life. That last
one in particular is really something that is used often politically.
For example, it is really easy for politicians to manipulate
voters who don't understand the basics of even earnings and taxation. Now,

(02:28):
before diving into the implications specifically for credit, because that
was ultimately what this was about, I thought this financial
literacy piece was an important aspect. Here's an idea of
what the impact of overall financial literacy means to the
average person in this country. Financially Literate people earn more,

(02:50):
invest more, produce better investment returns and maintain a net
worth that is how much higher? Do you think of it?
Just being financially we aren't talking about, you know, being
Warren Buffet here, just being able to pass a basic
financial literacy test, which most Americans are not currently doing.
Being able to do that, how much more net worth?

Speaker 1 (03:17):
I mean, just having the basic knowledge as you said,
I would say like sixty percent.

Speaker 2 (03:22):
Yeah, multiply that by quite a bit and you'll get there.
Those who are financially literate maintain a net worth that
is two point five times higher. And those are just
the averages. So, in other words, financial literacy will result

(03:42):
in the average adult being worth two hundred and fifty
percent more than they otherwise would be with all other
factors being equal, living the same life, doing the same
relative stuff, simply having command and then presumably making better

(04:04):
decisions as a results of it. Two hundred and fifty
percent more no worth. And that is the best way
that I can think of to illustrate the importance of
financial literacy at any age, but especially earlier. So you're
talking about your son getting ready to turn eighteen, I
mean this is perfect. As for the credit specific question,

(04:25):
I want to boil this analysis down as much as possible,
because it is real easy to get carried away with
a bunch of numbers Quickly. I was thinking about how
to present this, and I'm like, oh, boys, it's going
to be so Generally speaking, credit impacts just about every
aspect of one's financial life, from having access to certain
products and services to what you have to pay for
those products and services. So what I decided to do

(04:48):
to try to make this easy from a sheer numbers standpoint,
I broke out the average costs for these aspects of life, housing, transportation, credit, insureance,
in utilities, and by the way, in utilities, I included
wireless service. Here's what those breakouts look like. The total

(05:08):
lifetime costs in today's dollars for the interest expense for
the average mortgage, auto loan, credit card, auto insurance, homeowners insurance,
and utilities. If you have a six hundred credit score,
better run, you an average of seven hundred and eighty

(05:30):
seven thousand dollars. If you have a seven hundred credit score,
that bumps down to seven hundred and five thousand. If
you have an eight hundred credit score, that comes down
to six hundred and thirty nine thousand, so aside from
perhaps not always having access to all the products and

(05:51):
services one may want. The difference between a poor credit
score of six hundred and a good credit score of
seven hundred is eighty two thousand dollars on average, the
difference between a good credit score of seven hundred and
an excellent credit score of eight hundred is an additional
sixty five thousand dollars. This also means that the difference

(06:14):
between a poor credit score and an excellent credit score
is one hundred and forty seven thousand dollars. Now, to
put this in additional perspective, the average full time income
in Florida is sixty thousand, eight hundred and fifty dollars.
Right now, this means that the average Floridian with poor

(06:35):
credit must work in an additional two and a half years
simply to pay for the extra interest expense associated with
having poor credit compared to excellent credit. Two and a
half years just to accommodate poor credit, And that is

(06:58):
not factoring into the conversation the opportunity costs associated with
that money, Like what would happen if you took it, saved,
and invested over the course of your life? So on
that those numbers would be massive, but anyway for your
purpose is hopefully helpful and motivational.