The Importance of Financial Literacy: Why You Need to Know More About Money Management
Finances can be tricky, especially if you have no idea what you’re doing or why you should care about money management in the first place. Many people lack financial literacy, and that’s not their fault—it’s because they weren’t taught about money as kids. If you don’t know where to start when it comes to learning more about your personal finances, read on for some of the best financial literacy advice out there!
What is financial literacy?
The term financial literacy is often misunderstood, with many people thinking it means knowing how to make more money or save more money. In reality, financial literacy is all about understanding how you spend your money and why; it’s about being able to break down your monthly budget into its different components and understand where every dollar goes. The good news is that it’s never too late to learn these skills—even if you’re a bit older or have been in one job for years, there are resources available for everyone. Here are just a few examples of what’s out there:
In-person classes from universities or community colleges . Many schools offer financial literacy courses as part of their continuing education programs. If you want to take an in-person class, check with your local school district or look online at sites like Coursera and Udemy for information on local options. There may also be opportunities through community organizations (like churches) or even companies within your industry.
How does it affect me?
For most people, financial literacy goes without saying; however, a recent survey conducted by Wells Fargo and Gallup reveals that only 24% of Americans possess a high level of financial literacy. Additionally, 35% of adults said they can’t afford an unexpected $400 expense—if something like that happened, these respondents would have no choice but to sell possessions or borrow money from friends or family. Sadly, many Americans don’t understand what they don’t know when it comes to money management. Fortunately, taking steps toward understanding and developing basic financial knowledge is easier than you might think. Just consider these simple steps for getting started with improving your financial literacy:
2. Start saving now—and stick to it! The best way to prepare for a potential emergency is to start saving now so that you can put away enough cash for whatever life throws at you. As tempting as it may be, never touch your emergency fund unless there’s an actual emergency. Saving up for short-term goals will also help build good habits for long-term goals like retirement and buying a home in 10 years or so. 3. Figure out how much you spend each month on bills, groceries, gas and other necessities so that you know where your money goes each month (and then work on cutting back if necessary). 4. Make sure you have adequate insurance coverage. If something bad happens, do you have enough insurance to cover all of your expenses? 5. Open a savings account and make regular deposits into it—even if they’re small amounts. 6. Get rid of high-interest credit card debt by taking advantage of balance transfer offers or by making extra payments toward your credit card balance every month until it’s paid off completely.
When do I need to worry about my level of knowledge?
A lack of financial literacy could negatively impact your ability to retire, secure a loan, and pass along an inheritance. In addition, poor money management skills can also harm relationships with others as well as yourself. So when do you need to worry about your level of knowledge? If you have never learned how to save for retirement or prioritize your spending, or if you have never learned basic money management skills such as how compound interest works or when you should take out a loan—or both—it’s probably time to learn. And if either scenario applies to you in large part because no one ever took time out of their day (or yours) to teach it … well then I’d say it’s definitely time! Financial literacy is a vital skill that we all need in order to successfully live our lives today, tomorrow, and throughout our golden years. If you are serious about building wealth over time, then it’s important that you know more than just how much cash is in your bank account at any given moment. It’s important that you understand why you have so much money sitting there (and whether or not it will be enough), why saving is important now instead of later, what type of loans are available to people like us (people who don’t come from money), etc., etc., etc.
What should I be doing now?
One of my favorite finance books is written by an ex-Wall Street financier named George Kinder. In his book, he says that one of things that makes a successful investor is focus and determination. Successful investors plan their investments and also stick with them once they’ve made their decision. Once you have found something that you’re interested in, you need to continue investing as much as possible until your funds run out. If you don’t do these things, then it’s going to be extremely difficult for you to see any sort of success when it comes to investing in something. So if there’s anything else you could invest in right now besides stocks or mutual funds, I highly recommend doing so before completely focusing on making money off your investments. That way, you’ll be able to make more money from your investments later on down the road.
How can I learn more about money management?
It doesn’t matter if you work in finance or have never even opened a bank account—it’s important that everyone learns as much as they can about money management. So, how do you get started? There are plenty of ways to learn more about finances and money management, such as checking out books at your local library or spending some time on YouTube (there are dozens of great money management videos). Whatever way you decide to go about it, make sure that you spend enough time learning and listening so that you develop a firm understanding before actually making any financial decisions for yourself.
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