The month of April highlighted financial literacy, which is the ability to use knowledge and skills to manage your financial resources effectively for a lifetime of financial well-being. This month is an opportunity for everyone to check in on their financial situation and improve their personal finance skills. Take this opportunity to review your finances and gradually make small changes to improve them. Whether you’re new to earning money or you’ve been earning for some time, it’s always a good idea to reflect upon your spending and improve your finances.
What is financial literacy?
Financial literacy is having the understanding of financial principles to manage your money in a wise and effective manner. Financial literacy covers financial concepts like making a budget, saving, paying bills on time, managing debt, planning for home buying, investing for retirement, and being aware of financial fraud. These concepts are very important, yet, many individuals lack basic knowledge about these important financial aspects.
In order to be financially literate, you must know how to manage money and show you can actually do it. It may not be hard to learn the principles of money management, but to become truly financially literate you need to take it one step further and implement good financial principles in your own life. This includes creating and sticking to a budget, saving for your future, and using credit cards without accumulating debt.
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Why is financial literacy important?
Financial literacy is important because without a proper understanding of personal finance, and the skills necessary to manage money effectively, financial success becomes extremely uncertain. Without financial literacy, the financial decisions you make, or don’t make, can potentially threaten your financial security. When you understand every aspect of your finances, you’ll be able to set short-and long-term goals and avoid putting a strain on your finances. A lack of financial literacy can potentially hurt you financially.
Important aspects of financial literacy
Budgeting
- A good budget can provide you with a solid financial foundation. It offers insight into how much money is entering your household each month, how you tend to spend your money, and how much money you need to cover necessary expenses. You can learn how to create a budget here.
Debt Management
- If you have debt, you’re not alone. In fact, 340 million Americans are in debt. A big part of financial literacy focuses on understanding how the time and money people spend on paying off debt hurts their ability to invest. You can learn about different debt payoff methods here.
Saving
- As previously mentioned, having debt makes saving money much harder. However, it is possible to do both at the same time. Start by saving an emergency fund, a little at a time. Having an emergency fund will help alleviate the financial stress of uncertain life events and help keep you get out of debt in the future. If you don’t have an emergency fund, don’t panic because you can learn how to start one here.
Investing
- Investing is the process of buying assets that increase in value over time and provide returns in the form of income payments or capital gains. Investing can also be about spending time or money to improve your own life or the lives of others. There are many different options for investing. You can invest in a retirement fund, stocks, real estate, and much more.
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Becoming financially literate
Financial literacy is a core life skill for participating in modern society, and yet it’s just now being introduced in some schools. It’s not uncommon for adults to struggle with financial literacy. In fact, only 57% of US adults are financially literate and 21% of Americans have no emergency savings. If it wasn’t mandatory to take a class to learn how to invest or to even write a check in high school, many seek financial information on their own, and are playing catch up in order to become financially literate. Without this basic financial knowledge, young people are forced into to the world without the basic financial knowledge needed to get by day to day.
There’s always time to brush up on your financial knowledge if you think you’re not up to par. There are a plethora of resources available to help you become financially literate, and many of these recourses are free. If you have a busy schedule, but still want to improve your financial literacy, try listening to a money podcast. You can listen while you’re on the go and they’re free! There are a plethora of different financial podcasts that focus on varying aspects of personal finance. You can listen to Navicore’s podcast Millennial Debt Domination here.
The future of financial literacy
Once you feel confident in your own financial literacy, pass the knowledge you’ve learned on. So far, only 25 states in the US have introduced legislation that would add personal finance education to their high school curriculum. If you live in a state where your child isn’t required to learn personal finance, you have to become your child’s first financial literacy teacher. Financial education is a lifelong process and it’s never too early to start talking to your kids about money.
If you have younger children, you don’t have to do a deep dive into investing with them, but you can teach them the basics, starting with saving, giving, and spending. Once you start talking to your children about money, you need to keep the conversation going through their young lives. At each new phase of your child’s life, you want to approach the teaching of financial literacy differently. By taking initiative to educate yourself about personal finance, you’re in turn helping your family’s financial future. You’ll be able to guide your children regarding their personal finances, providing them the financial knowledge they’ll need to thrive later in life.
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If you want to lead a financially stable life, understanding how money works should be a high priority on your list. From budgeting to saving, every piece of knowledge you gain is a tool that will help you make stronger financial decisions. If you find it difficult to manage your finances, consider a credit counseling session with a certified counselor. It may be the impetus to getting your finances back on track. Any improvement in financial literacy will have a large impact on you and your ability to provide for your future self. Becoming financially literate when mastered, can ease life’s burdens tremendously.
