“Financial illiteracy is not an issue unique to any one population. It affects everyone: men and women, young and old, across all racial and socioeconomic lines. No longer can we stand by and ignore this problem. The economic future of the United States depends on it.”
- President’s Advisory Council on Financial Literacy
The fact that improving your financial education will increase your money management skills and set you up for a healthy financial future is undeniable. The stats speak for themselves. Financial habits are affected by the ability to understand and apply basic principles, or conversely, the lack of knowledge about it. In other words, if you don’t understand basic principles in a subject, then your habits regarding that subject will be based on flawed reasoning, and poor decisions are likely to result.
While most Americans live with a dream of accumulating wealth, there is a reverse trend in reality. On average, the American household income is approximately $75,000 but the average American household also has over $132,000 in debt, while only 18 percent of Americans contribute to an IRA. Simple math indicates that the majority of Americans are not on track to accumulate wealth in their lifetime.
There is a simple way to counteract this trend though: Financial education. According to the Financial Educators Council, three years after implementing a financial education mandate in Georgia, Idaho and Texas, all three states saw increased credit scores and lower delinquency rates on credit accounts. That stands to reason and falls in line with the concept that better education equals better financial decision making. By learning high quality, non-complex information and facilitating the best use of available resources in real-life situations, financial decision making is positively effected.
Financial literacy is not just knowing how to write a check or creating a budget. It involves knowledge about credit management, wealth accumulation, and savvy financial practices. Understanding how to make sound financial decisions when it comes to money is the thing that separates the wealthy one-percent from the rest of the population. It is simply not possible to earn and keep your money if you are financially illiterate.
And if ever there was a practical test of how financially unprepared Americans are, the COVID pandemic has laid bare the need for greater financial literacy and how vulnerable so many of us are. Half of all Americans say they would experience financial hardship if they had to cover an emergency expense of $1,000 or less in the next 30 days.
The lack of financial education contributes to some of the biggest social issues our country faces, including poverty, lack of job opportunities, unemployment and wealth inequality.
Here are some simple steps that can be done to help strengthen your financial position:
1. Start an emergency fund. Aim for $1,000-$2,000 to get started, but set aside whatever you can and then work your way up to cover three to six months of essential expenses over time.
2. Create a budget to help prioritize and assess financial resources. Self-isolation has led to different spending patterns for many people, including cutting back on what some may have previously thought of as “essential.”
3. Create a financial plan. Consider it a roadmap to reach financial goals, whether that’s to pay off debt, build savings, or make a large purchase.
4. Ask for help if you’re struggling. Given the scale of this economic crisis, the government, lenders and creditors are trying to work with borrowers through this difficult time.
5. Focus on what you can control. You can’t predict or control the market, but you can control your own financial education and learn how you manage your investments, your savings, having a financial plan and how you react to events.
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