Financial literacy might be a term you aren’t familiar with, but it greatly influences your everyday life.
To be financially literate is to have the ability to understand and manage the financial areas of your life. This can involve budgeting, debt control, taxes, and even investing. Much like digital literacy or literacy itself (reading and writing), financial literacy is an important skill to master. Remember the financial crisis of 2008, when a lot of people lost their homes and savings? Financial knowledge played a role then (and so did a large degree of bad banking practices).
The economy may be recovering, but there’s still a need for saving skills and financial savviness, especially with some financial experts predicting another recession in the near future. Learning to be financially literate can help you stay secure in both the short-term and long-term and protect your financial health.
A Confident Today
The short-term benefits of having money savviness should be apparent almost immediately. Take budgeting for example.
Budgeting is key for short-term financial survival and success. Knowing how much money you have and can spend, and what you need to spend it on, means nothing gets missed — all your bills are paid on time and the essentials planned for. It can also keep you from impulse spending, which can ruin you financially if left unchecked. But, following a budget isn’t just planning how to spend your money. When you pay is as important as how much you pay. If you wait to pay your bills right before their deadlines, you could be left with very little funds in your bank account and may have to rely on credit for other expenses.
Budgeting is key for short-term financial survival and success.
As the decisions it takes to attain, and retain, financial independence grow more complex, financial literacy becomes even more important.
Do you trust your money to an international bank, a local bank, or a credit union? Will you use 72c CTR structured payments to keep your home secured or a classic mortgage? Will you save money in a 401k or a Roth IRA? What’s the APR on your credit card? One of those statements is complete gibberish and knowing which one can be essential. (We put it in there to illustrate how difficult it can be to understand the language of money, a.k.a. financial literacy.)
These are only a few facets to the ever-evolving financial environment that we face every day — ones you should be able to comprehend. Budgeting and dealing with the immediate complexities and consequences of financial decisions are just the tip of the iceberg, though.
A Secure Tomorrow
Having a strong understanding of money isn’t only helpful for getting through the present. Setting yourself up with fiscal savviness has benefits that can reach far into your future.
Building a strong savings plan can ensure that you have money when you need it most, especially in the case of an emergency. If done right, your plan can go on for years, accounting for your bills and leaving room for fun. It can ensure you don’t feel the pinch of economic anxiety that strikes millions of Americans each year and set you up to enjoy a more worry-free retirement.
For increased security, you could supplement your savings plan with a smart investment or savings strategy. You could try the stock market, an annuity, or bond laddering. With the right level of financial knowledge, you’ll know which options fit your needs and abilities best.
The long-term importance of financial literacy becomes even more important as our lifespans continue to grow.
The long-term importance of sound money practices becomes even more important as our lifespans continue to grow. Sixty-six is the typical expected retirement age in the United States, and the average lifespan of an American is now 78.6 years. With the way medicine is advancing, the first person estimated to live past 1,000 years old may already be alive today!
The median retirement savings for workers between ages 65 and 74 is $126,000, if they have savings. This figure drops to $17,000 when you include workers without any savings. Keep in mind that the average retired household spends around $46,000 annually. Social Security may help take care of these expenses, but with the average Social Security payout, your savings may only last a few years! You don’t want to outlive your assets.
How Can I Improve My Financial Literacy?
It’s all well and good to know why personal financial skills are important. Knowing how to improve your financial literacy is equally important. Luckily, you’ve got plenty of options to help yourself out.
Knowing how to improve your financial literacy is equally important.
In the past, we’ve covered a few personal finance topics, like funding your retirement and preparing for retirement, but we’re not really a finance blog. There are many ones out there, like The Motley Fool and Investopedia. If you want extra guidance, many banks and credit unions offer their members financial advising (with both free and paid services). You could also try a finance class, either online or in a classroom. (A quick Google search can help you find financial literacy or personal finance classes near you.)
● ● ●
Finance may not be your favorite subject, but understanding personal finances is necessary to afford the more fun aspects of your life. Without it, you may find yourself struggling to make ends meet or fight an out-of-control credit debt. Much like any form of literacy, financial literacy is essential to your ability to live a healthier and more fulfilling life now and in the future.