Financial literacy is a term used to describe the ability of a person to make financial decisions wisely so that they may participate in the American economy. For many people, gaining financial education is not easy to do, and it may require seeking out additional resources. April is National Financial Literacy Month. Here is what you should know about it and how it may impact your future.
What Is Financial Literacy Month?
Financial Literacy Month aims to raise awareness to creating a secure financial future. At the launching of this month, the goal was to create a period of time to encourage people to reflect on their current personal financial state and to find ways to potentially improve that state.
This is a month to focus on improving your financial education for yourself. It may also be the time to help others around you learn a bit more about how to make wise financial decisions. This is a national campaign that helps to help people recognize the importance of this type of education in their own lives and those in their community.
What is financial literacy?
The term financial literacy may focus on a wide range of aspects of financial education and knowledge. It may include areas such as personal finance management, investing, budgeting, paying down debt, and making wise purchasing decisions. Though many people go to school to learn how to earn various skills, many people do not get actual education in how to balance their checking account, create a budget, or start savings funds. Financial literacy, then, is the representation of if people are able to do this as well as what it takes for someone to do so well.
Why is financial literacy so important?
Having knowledge about how to manage funds is quite important for many people. The goal is not to set out to earn as much as possible but instead to find a way to use what you earn in a wise manner. Those people who are financially literate have more confidence in managing funds and a better opportunity to manage the ups and downs of their lives when it comes to funds. It may help people in various ways, such as:
- Knowing how much you spend: This may help a person to make better decisions about where they are spending their earnings. With a budget, it may be possible to better understand how far your cash is going.
- Working to pay down and avoid debt: Financial literacy helps people understand how interest rates impact their overall debt and financial wellbeing and how to create a plan for reducing their debt. It also may provide you with tools to help you avoid creating new debt.
- Reducing risks of bankruptcy: Those who are able to learn more about financial literacy may be able to build up an emergency savings account so they may fund situations as needed. This could help a person to build savings that enables them to avoid bankruptcy in tough times.
- Building retirement goals: Those who are financially literate may have a plan in place to help them build savings for their retirement years.
What are some tips encouraged during Financial Literacy Month?
There are many things people may do during this time to focus on improving their financial health. During this month, make an effort to learn about financial wellbeing and take action to improve your own overall financial health. For each person, it means taking action to improve the state of their financial wellbeing based on their needs.
Some tips could help people achieve these goals. This may include:
- Gathering and reviewing credit reports to check for accurate
- Working to create a plan to reduce debt, such as working to pay the smallest balance first or paying down the debt with the highest interest rate first, depending on your goals
- Creating a realistic budget based on your income and expenses and then implementing it
- Utilizing the various resources available to improve financial literacy, such as turning to educational programs
The History of Financial Literacy Month
Financial Literacy Month was officially put into place on March 9, 2004. At that time, Senate Resolution 316 passed, in which April was determined to be Financial Literacy Month. The bill, sponsored by Senator Daniel Akaka, was designed to raise public awareness around financial literacy, specifically, education for those living in the U.S. It also aimed to educate consumers on the impact that poor financial decision has on the community as a whole.
Over time, there has been some effort to update Financial Literacy Month to “National Financial Capability Month.” During this month of April, many organizations, including federal and state agencies, nonprofits, schools, and others, work to do their part in helping to raise financial literacy education in the country. The focus is particularly important because of the way that the financial decisions one person makes often impact the community as a whole.
How Can You Get Involved in Financial Literacy Month?
There are many ways to participate in Financial Literacy Month. That includes taking a closer look at your own finances but also considering helping others who may also need support. During this time of the year, focus first on creating or improving your financial strategies, including reducing your own debt, improving savings, and building a strong budget. Here are a few more tips to help you to get involved.
Update your budget now
If you have not done so in the last year, track all of your expenses and income. Then, create a budget that’s cash based, meaning all of your purchases are from available cash you are bringing into your home each month rather than using credit cards. You may find budget worksheets available to help you do this.
Talk to your kid about financial literacy
Now is a good time to help your children learn about financial literacy. Help them to save for their long term goals or purchases. Teach them how to put away a portion of the funds they are gifted or earn each month into savings.
Check your credit report for errors
Report those errors to your credit bureaus right away. You may get one free copy of your credit report from each of the three national credit bureaus one time a year. Do that to learn if the information there is accurate. You may do that at annualcreditreport.com.
Find out if your employer offers retirement plans
If your employer offers retirement planning, consider setting it up and contributing to it. Retirement plans may have tax advantages and could help you to plan for your financial future, enabling you to have the financial means necessary after you decide not to work.
Learn how to compare loans
Whether you are considering a home loan or mortgage, it is always important to understand what the loan terms are. Take some time to learn about interest rates, loan terms, and all of the costs of borrowing funds. It may also be beneficial to include your children in this learning process if they are older.
Offer your help to others
If you know of someone in the community who may need help balancing their checkbook or may need support in learning how to pursue a loan, offer it to them or guide them in getting that support yourself. You may wish to do this within a community center. If you are a licensed professional, you may wish to offer pro bono services to people who are in need.
Consider building better job skills
Job skills are often tied to earning power. For those who may be in a job that may not provide a way to increase earnings without additional education, it may be a great idea to consider community programs that could help you to get that added education.
Talk to your bank or credit union
You may be able to qualify for lower interest rates on existing loans or accounts that are more affordable to you. You may also be able to tap into new savings vehicles, like a certificate of deposit or a long term investment strategy that could help you achieve your goals.
Look for ways to improve your ability to make better financial decisions. This is often a very personal decision for many people, but it’s nearly always very valuable.
Financial Literacy Statistics
In a survey of 15 year old’s in the U.S., 18 percent of them did not have the basic financial skills that they need for the daily management of funds. This includes how to comparison shop, create a simple budget, or even understand an invoice they are to pay.
Only 27% of youth know what inflation is and may do a simple interest rate calculation.
The average amount of debt a student has after they leave a four year college was $18,550 in 2004. However, ten years later, that has grown by 56 percent to $28,950.
About 77 million Americans do not make payments on their bills on time.
41% of Americans do not have a savings account or do not keep funds in their savings account
39% of people in the U.S. carry credit card debt from one month to the next on a consistent basis.
Financial Literacy Resources
Use these resources to help you with improving financial literacy:
- Sign up for Money Smart Week. It’s a virtual event that offers insights on topics such as student loan management, tax-fraud, savings and banking support, and housing help.
- Explore the Council for Economic Education. This program is available throughout the year offering programs for adults, children, and families.
- Check out the Consumer Financial Protection Bureau. You will find information about paying for college, planning for retirement, buying a home, managing natural disasters, and watching your money grow.
- Learn your rights and how to fight fraud at the Federal Communications Commission.
- The Foundation for Financial Planning offers pro bono services for helping you to build financial wellness.
- Stay up to date at the Financial Health Network, an organization working to support financial health.
- Stay up to date on your rights and current scams with the Federal Trade Commission.