Step One – Knowing Why Financial Literacy Important To You!
For many adults who don’t work in finance, the terms and complexities of everything to do with financial literacy sends their stress level through the roof!
For many, they find it so overwhelming to understand financial terms and strategies that they choose to give up ever understanding how to improve their finances. Don’t let this be you!
Why do people give up on doing better with their finances when this one area can make their lives easier and allow them to do more of what they want to do?
The answer may lie in a lack of financial literacy and not understanding how important it is to having a successful financial life. In today’s world, most people would agree that the ability to read is vital to succeeding in a career and in life. People in most industrialized countries place a high value on learning to read and then progressing as far as possible with additional education.
Unfortunately, the same is not true of becoming financially literate. Take a look at how a group of economists who examined financial literacy explain the current situation and why it is so important to increase your financial literacy.
According to their research, the vast majority of Americans lack basic levels of financial literacy. For example, a survey of Americans over the age of 50 that asked three basic questions about compound interest, inflation, and risk diversification found that only a third answered all three questions correctly. And a more extensive survey of financial literacy among high-school students found that young people aren’t any more informed. Forty-four percent of U.S. students surveyed had scores that placed them at the lowest levels of financial literacy.
Worse still is that levels of financial literacy are lower among the less educated, minorities, and women. Almost 65 percent of Americans with graduate degrees possess basic financial knowledge and skills, compared to just 19 percent of high-school grads. African Americans and Hispanics score lower than do whites on surveys measuring knowledge about financial concepts like debt. And analysis done in the U.S. and Europe has consistently found that women are significantly less likely to answer financial-literacy questions correctly than men.
The costs of financial illiteracy are high. For example, research on credit-card debt found that those with lower levels of debt literacy were more likely to do things that resulted in higher fees and charges like going over the credit limit or only making the minimum payment. One study estimates that up to one-third of the fees and charges paid by those with lower debt literacy is due to a lack of knowledge. Overall, financial mistakes tend to be more common among those with less education and income. Financial institutions often target such unsophisticated consumers with their less-than-straightforward—and often very expensive—financial products. A recent study found that misconduct by financial advisers is concentrated in firms located in counties with low levels of education and elderly populations.
By contrast, being financially savvy has clear payoffs. Those with higher levels of financial literacy are more likely to plan for retirement, make better investment decisions, refinance mortgages at the optimal time, and manage credit-card debt better. They are also more likely to sidestep common pitfalls like borrowing against 401(k) accounts.
– via The Atlantic
Step Two – Becoming Financially Responsible
It may sound strange but really taking responsibility for your own financial choices and making the decision that you will learn to make better choices is one of the first steps to financial literacy and a brighter financial future.
For so many of us, our financial road to this point has been one that ran in a circle going around and around making the same types of choices and feeling that we have no other options.
This way of thinking that we have no other choice, or that we can’t learn to handle our finances so that we move forward financially instead of backward is flawed thinking. Anyone who will commit to change and will not give up can improve their financial picture now and in the future.
Now there will be work and you may not feel the reward just yet, but the only way to have a better financial life is to make better financial choices and stick with them!
What you don’t know before you start is just how empowered learning about your finances and making better choices will make you feel! You will soon feel a freedom you have never felt before. Financial literacy and financial responsibility give you power over your finances so that you control them and you improve them not the other way around.
Here is a good step in your journey toward financial responsibility.
Sorry – if you’re really looking to be financially responsible, just being able to make your credit card payment doesn’t cut it. In fact, the fact that you have a credit card payment at all and aren’t able to pay your balance in full shows that you already spend more than you earn. Responsible use of a credit means paying the balance on your account in full each month.
And (this part will hurt) credit cards should be used for convenience, not to make ends meet. Credit cards are handy because they eliminate the need to carry cash – you can even generate reward points. And credit cards can be very helpful in an emergency. That said, if an emergency does force you to carry a balance on your card, living in a financially responsible manner means curbing your spending until that balance is paid off. (Learn how to manage credit cards responsibly in Take Control Of Your Credit Cards.)
The same logic applies to all recurring payments that involve paying interest. Think about: Paying interest on anything means that you are spending more for that item than the purchase price. Does that sound like the most responsible choice, or just the most convenient? When the interest payments are factored in to the purchase price, you are spending more to obtain the item than even the item’s manufacturer thought it was worth. As such, avoiding paying interest on anything should be a major objective. Of course, when it comes to the cost of housing and transportation, avoiding interest is almost impossible for most of us. In such situations, minimizing the amount you spend in interest each month is the most responsible action.
– via Investopedia
Do you believe that you need to learn more about handling your finances?