Why Financial Literacy is so Important
Knowing your financial basics is a skill that shouldn’t be too tough to explain as to its importance. The problem though is that so many Americans just don’t have that fundamental education when it comes to their personal finances.
Many Americans deal with money problems on a daily basis because of financial illiteracy, and the issue doesn’t just impact your personal pocketbook — it has far-reaching effects on a national economic scale. Think about it, when a large portion of the population is making poor financial decisions, you start to see the bigger picture of how group economics can steer a national economy into trouble.
Experts have studied the relationship between financial crises and overall financial literacy extensively. The research confirms that being more literate in financial topics positively impacts an individual’s capacity to overcome major economic difficulties like COVID-19 or the 2008 financial crisis. At a glance, this makes complete sense because if you are well-versed in basic concepts of an economic nature and fiscal responsibility, you’re far more likely to weather a storm and come out okay — you’re more likely to have savings set aside or an emergency fund in place.
But according to recent studies, only one-third of adults understand basic financial concepts, with 4 in 7 Americans being financially illiterate. Only 24 percent of millennials understand basic financial topics.
Luckily, Americans are making strides towards becoming more financially literate and care about learning the basics to make smarter money decisions and teaching the next generation as well. In 2020, some states took measures to improve financial education in our youth by requiring high school students to take a personal finance course — up 24 percent from 2018.
The truth is, financial literacy is an essential skill to be developed if your goal is to build wealth and enjoy financial security and well-being. Financial Literacy provides a long list of advantages. It increases your earning potential. It increases your return on investment. It improves the quality of your life and finances. It defends your portfolio from unnecessary losses. And it provides peace of mind about money.
Peace of mind alone should be enough of an inspiration. The extensive negative effects of stress are well-documented, and according to the American Institute of Stress, over 70 percent of people experience physical or psychological symptoms caused by stress. Connecting the dots here, a new survey from Thriving Wallet, a project backed by Thrive Global and Discover, found that 90 percent of Americans say that financial considerations have an impact on their stress levels.
One other notable finding from that same study is this: roughly 40 percent report that they are currently taking no notable steps to secure their financial future. In other words, they have resigned themselves to a life of financial hardships, and aren’t doing anything about it.
Doesn’t that sound like a sad proposition? Especially when there are simple steps that can be taken to improve your money IQ and set you on a corrective course toward financial freedom. Making financial goals, paying bills on time, having some money in savings, saving for retirement, starting an investment strategy, keeping to a budget, and so on. These all go a long way toward reducing that feeling of stress every month — but it all starts with financial education and financial literacy.
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. Member FINRA & SIPC