Financial Education and Well-being

Money is intricately entwined with virtually every aspect of adulthood, from choosing a career, a credit card, a mortgage, an auto loan, and investment options to starting a business, getting married, having children, and retiring comfortably.

Financial education is key to achieving financial well-being and eliminating the stress around money.

Financial Well-being vs. Financial Stress

Consumer Financial Protection Bureau (CFPB) defines financial well-being in terms of financial security and financial freedom of choice in the present and future.

Being financially well means you can meet your present and ongoing financial obligations, can make choices that allow you to enjoy life, and feel secure in your financial future.

However, data from a 2022 study from the American Psychological Association (APA) shows that money continues to be a leading cause of stress for many Americans.

Financial stress happens when there’s a sense of worry about the future, uncertainty around finances, and a lack of financial security. 

Like most types of stress, this can affect you’re:

• Physical health
• Emotional health
• Ability to sleep
• Family life
• Relationships
• Performance at work

Financial Education to the Rescue

Financial well-being is the goal of financial education.

Financial education will help you develop a stronger understanding of basic financial concepts—that way, you can handle your money better.

That’s a worthy goal, especially considering the following stats about how the typical American handles money:

• Over a quarter of US workers save no money from month to month
• Nearly 4 out of 5 workers live paycheck to paycheck to make ends meet
• Almost three-quarters are in some form of debt, and more than half assume they always will be

With these numbers, it comes as no surprise that leaders in government, business, and education want to help spread the benefits of greater financial education to as many people as possible.

Importance of Financial Education

“Often, because of a lack of literacy or poor knowledge on money, people are forced to pay high interest and charges for loans or land in trouble as victims to scammers, etc.,” advises Nicholas Jembelis, Senior Vice President, Investments at David Lerner Associates.

“Hence a basic level of financial education is essential for everybody. The subject of financial literacy involves budgeting, investing, debt management, insurance, taxation, retirement planning, and estate planning.”

Listed below are the advantages of being financially educated:

• Effective creation of a realistic budget
• Effective management of debt
• Reduction of discretionary expenses
• Better equipped to reach financial goals
• Ability to make informed financial decisions
• Less financial stress and anxiety
• Increased ethical decision-making when selecting investments, loans, insurance, etc.

Are You Financially Educated?

To help you decide whether you should include yourself among the financially educated, think through the following questions and give yourself some honest answers.

• Do you have a deep understanding of financial terms and concepts, such as asset allocation, compound interest, and tax-efficient investing?
• Can you create and manage a comprehensive financial plan that aligns with your short-, mid-, and long-term goals?
• Have you studied and evaluated different investment options and strategies, such as individual stocks, mutual funds, and ETFs?
• Do you understand the potential benefits and risks of investing in alternative assets like commodities, real estate, or cryptos?
• Have you developed a thorough understanding of tax laws and strategies to reduce your tax liability, such as retirement account contributions and tax-loss harvesting?
• Have you reviewed and optimized your retirement plan to ensure you are on track to meet your retirement goals?
• Are you familiar with different insurance policies and have you chosen the most appropriate coverage for your needs?
• Have you evaluated your debt portfolio and created a plan to pay off high-interest debt?
• Do you have a comprehensive estate plan that includes a will, healthcare directives, and power of attorney?
• Are you aware of the common financial scams and do you know how to protect yourself?
• Have you planned for major expenses such as paying for college, buying a home, or starting a business?
• Do you have an adequate emergency fund to cover unexpected expenses?
• Have you sought professional financial advice and guidance when necessary to make informed decisions about your finances?

What Action Steps Can You Take?

Hopefully, your answer was “YES” to most, if not all, assessment questions. If so, congrats! You’re probably among the few Americans who are financially educated

But in case you answer “no” to most of the questions, don’t be discouraged!

There are resources that can help you get a better understanding of how money works.

The problem with traditional thinking around personal finances is the assumption that financial literacy is innate. In reality, financial literacy is a skill like any other. One that can be learned and improved upon. 

Conclusion

Financial well-being is the goal of every American and it can be attained regardless of income.

Taking action to become financially literate is a critical component of life that can ensure financial solidity, minimize anxiety, and stimulate the accomplishment of financial goals.

Maybe you have a lot to learn with personal finance, but it’s encouraging to know that doing this could transform whole families, communities, and even the nation!

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IMPORTANT DISCLOSURES

Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc.

This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law.  Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual’s personal circumstances.

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