Why financial literacy is important, from saving to paying debts

Why financial literacy is important, from saving to paying debts

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Knowledge is the key to financial success.

However, many Americans have no financial knowledge. This can affect everything from the amount of money saved to the debt owed.

The situation is terrible for more than a few. More than half of Americans cannot cover a $ 1,000 emergency expense with savings, a January Bankrate poll found. Meanwhile, about 20 percent of employees lose their money before their next paycheck, according to Salary Finance. It is up from 15% last year.

In the meantime, US adults answered only 50% of the questions in the TIAA Institute-GFLEC Personal Finance Index in 2021 correctly, a remarkable measure of financial literacy. This is 2 percentage points lower than the previous year.

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“Financial knowledge can help Americans feel confident in the decisions they make on a daily basis,” said NFL linebacker Brandon Copeland, who teaches a personal finance course at alma mater, University of Pennsylvania.

“To be successful in everything I do, I must first understand the rules and guidelines of the game,” he added. “The same goes for understanding money and how it works.”

Build good clothes

These days, Americans are still facing the consequences of the Covid-19 pandemic and the ensuing inflation, which costs an average US household with an additional $ 296 a month, a Moody’s Analytics analysis found.

However, there will always be something that can disrupt your life, said Nan Morrison, president and CEO of the Economic Education Council.

“There are a lot of things that can affect your income or the world around us, but making a decision right now isn’t going to be that helpful,” she said.

“Once you’ve built the good habits you need early in life … it will help you get through all these changes.”

These behaviors include understanding the financial situation, building a budget, and saving for emergencies.

Saving and investing

Married couple hugging on the couch

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Knowledge is also power when it comes to investing. While meme and cryptocurrency trading has become popular, it’s important to remember that long-term savings are vital to your financial health, said certified financial planner Cathy Curtis, founder and CEO of Curtis Financial Planning in Oakland, California.

It was something she recently advised her new hairdresser about, after he confessed his anxiety about money and his concern for providing financial stability for his family. The 40-year-old stylist was invested in a fintech and crypto company stock through a popular trading application, but had no pension or life insurance savings.

“If only my stylist knew the basics about Roth [individual retirement accounts]for example, many years ago, it would have been so long ago, ā€¯Curtis said.

“Without basic financial education about the power of combined interest rates, what types of savings and pension accounts are available, and how important it is to start saving early, the financial future of many Americans is bleak.”

Helping relationships

Couples may have different thoughts about money. When there is mismanagement of finances or a difference of opinion about how money is used, it can create conflicts.

“Many couples struggle to talk about money, and if there is a lack of financial knowledge in the couple, there could be many financial mistakes,” said Dr. George James, a licensed marriage and family therapist, chief innovation officer and personnel therapist. superior to non-Profit Relations Board.

“Having a better understanding of financial literacy can help relationships build a future and be on the same page,” he added. “It can also reduce the amount of conflict.”

Personal finance in schools

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Lawyers believe that it is important to start learning good financial habits from an early age and there is no better place than school.

Twenty-five states require high school students to take personal finance courses, either in an independent class or integrated into another course, according to the Economic Education Council. Last week, Florida became the latest to sign a bill requiring a graduation course.

In addition, there are currently 46 pending personal finance invoices in 21 states, according to Next Gen Personal Finance’s invoice tracking tool.

The impact of this education can be seen in several studies, say lawyers. It has been shown to reduce the likelihood of using payday loans among young adults and is positively correlated with the accumulation of assets up to the age of 25.

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