What exactly is financial literacy?
People talk about it and write about it. It’s kind of a buzzword now, being prevalent in many ways and in many contexts, especially during Financial Literacy Month, which just ended in April.
In fact, it’s important to understand what it means and why it matters to all of us.
Financial literacy isn’t just about understanding how to write a check and balance a checkbook (if that still applies). It’s having the confidence and understanding to manage your own finances, or lack thereof, and the means to find a prudent path that will support you and your family through retirement and beyond. of the.
So why is it important to increase financial literacy?
The growing gap between the “haves” and the “have nots” is real. And like education, having financial knowledge can help move a person from one category to another.
The stats tell the story: women and people of color most at risk
- There has been a sharp decline in financial literacy in recent years when it comes to more complex topics, including inflation, financial risk, and mortgage rates. The nation has seemingly backtracked as the number of Americans surveyed by the FINRA Investor Education Foundation who could correctly answer most questions on important financial topics fell 8 percentage points in 2018 from 2009 – 34 % versus 42%, respectively.
- Specific segments of the population have fared less well than others. The study showed a lower level of financial understanding among black, younger, or low-income respondents.
And, although the lack of financial literacy applies to both men and women, on average, women score lower on financial literacy questions than men, the Federal Reserve found. Although it is not fully understood why the gap in financial literacy exists, one factor may be the gender roles that have defined societal norms for managing finances. For example, historically in wealthy households, the male partner in a marriage was more often the one responsible for making financial decisions. With financial responsibility on one spouse’s shoulders, the other may not feel the need to learn more about earning, saving, and investing money.
Why are the numbers getting worse? There can be many reasons, but some point to smaller school budgets in the years following the Great Recession, which led to lower math literacy among students.
Financial education is one of the big dividers
Well, where to begin ?
As we do with many issues, let’s start with education.
Teaching children financial fundamentals from an early age is the first step. Financial education is one of the keys to any individual’s economic success.
In 2019, the U.S. Financial Literacy and Education Commission recommended that colleges require financial literacy courses as part of their curriculum, and in 2021, 25 states introduced bills requiring financial literacy training. personal finance for high school students.
By taking action to increase financial literacy at home and in our communities, we support closing the financial literacy gap, which also affects our economy on a broader level.
Having a sense of financial literacy at a young age, or having an adult who can help, could empower a student to make good choices and prevent them from getting into debt at a young age.
Student loan debt
It’s a big. Too many students (or their parents) enter college without being fully aware of the burden student loan debt will place on them after college. Understanding the ramifications of incurring significant debt of any kind is key to not graduating ‘in the hole’ and then having a career that won’t realistically get you out of that debt until you have thirties.
If you’ve been paying off student loan debt for more than a decade, combined with the lack of income you could save and invest, the losses are significant.
Credit card debt
The allure of plastic and “unlimited” purchasing power at a young age sounds like the siren call. And like the mermaids, this type of spending could put a young adult on the rocks with crushing financial problems if they don’t understand the dangers of going into debt with significant interest.
I’ve seen young professionals pay off credit card debt in college. (And not at student loan rates.)
And let’s not forget the millennials and other adults who are now realizing they don’t know what they want to know — or need to know — about their own financial health.
Fortunately, there are great online resources to help you, including https://handsonbanking.org/ (in English and Spanish) and programs supported by the National Endowment for Financial Education, among others.
Financial literacy is important. Not just during Financial Literacy Month, which was in April, but all months of the year.
Much like learning to read, financial literacy touches all of us because of the ripple effect it has on our economy and the growing financial divide. Most importantly, a lack of financial literacy directly affects the success and potential of another generation of children and their families.
President and CEO, Francis Financial Inc.
Stacy is a nationally recognized financial expert and the President and CEO of Francis Financial Inc., which she founded 15 years ago. She is a Certified Financial Planner® (CFP®) and Certified Divorce Financial Analyst® (CDFA®) who provides advice to women going through transitions, such as divorce, widowhood and sudden wealth. She is also the founder of Savvy Ladies™, a non-profit organization that has provided free personal finance training and resources to over 15,000 women.