It’s raining. It’s pouring. The old man is brushing up on his financial know-how.You’ll have to excuse this new take on a familiar nursery rhyme. In case you didn’t know, it’s Financial Literacy Month, and we’re excited about an entire month dedicated to helping you understand your money better.As a typically rainy month offering less incentive to enjoy the outdoors, it’s the perfect time to stay in and check in on your finances. The government knew what it was doing when it selected April as the official Financial Literacy Month here in the States.As a source for payday loans, installment loans, and lines of credit, we take Financial Literacy Month seriously here at MoneyKey. At its most basic level, financial literacy is your ability to understand how money works when you earn it, save it, and borrow it.But it means so much more. Today, we’ll share why Financial Literacy Month is so important, as well as tips to boost your financial knowledge!
What is Financial Literacy Month?Every April, the U.S. federal government recognizes Financial Literacy Month as a way to reduce financial hardships faced by Americans. Its objective is simple: to improve the financial literacy of the average person, so they’re empowered to make informed decisions about money.The key to financial literacy is education. All month long, private and public organizations provide resources, events, and activities that demonstrate good money management skills.The annual event is part of a broader national financial literacy campaign involving the Federal Financial Literacy and Education Commission. Better known as the Commission, this Congress-backed organization aims to strengthen financial wellness and increase access to financial services all year round.
April arrives in the nick of timeThe financial literacy campaign is crucial because, as it turns out, a lot of people need help managing their money.Around this time last year, Raddon – a research provider – released the results of its study “Financial Literacy: Prosperity Begins with Knowledge”. It reported almost half of its respondents (44 percent) thought they were extremely or very financially literate.The reality was few had the skills to back up their claims: just 6 percent passed with an ‘A’ grade while more than half failed.
How financial illiteracy may impact your financesAnyone who has failed a class in high school knows that an ‘F’ never feels good. But financial illiteracy can have a greater impact than just your self-esteem. A lack of financial literacy may have a profound impact on your personal finances.
1. You might find it harder to make ends meetIf you don’t know how to balance your budget, you may not be able to pay the bills — something an increasing number of people struggle with today.A 2017 study by CareerBuilder revealed that approximately 78% of US workers live paycheck to paycheck. At first glance, you may blame low earnings as the culprit. Generally, when you earn less money, you have less of it to spend on the necessities.However, the study suggests a bigger salary doesn’t always help. One in 10 workers make up the “wealthy hand-to-mouth” living paycheck to paycheck despite earning six-figures.Budgeting lies at the heart of household financial management. Without a firm grasp on this skill, you may find it hard to make ends meet no matter how much you make. Although a bigger paycheck may make things easier, it won’t erase your financial issues if you don’t know how to manage your income appropriately.
2. You may struggle to plan aheadIf you’re hyper-focused on your immediate needs, it can be difficult to step back and get a wider perspective. This makes it hard to think about your future, let alone plan for it. When you’re only concentrated on paying this week’s bills, you may not be prepared for future expenses.
What are the short-term issues?Part of balancing your monthly budget is making sure you’re putting some money towards savings, so you can take on unusual bills, unanticipated repairs, and medical emergencies.By living paycheck to paycheck, you may not have a robust savings account to help with these unexpected expenses.Neither do a considerable number of Americans. According to the Federal Reserve’s Economic Well-Being of U.S. Households in 2017, 4 in 10 adults wouldn’t be able to pay for an unexpected expense of $400 without borrowing money or selling something.Plenty of people turn to payday loans when facing a similar crisis, but payday loans aren’t the only type of small dollar loan option available to cover financial emergencies. Depending on where you live, you may have access to installment loans, which generally give you a longer term to repay what you owe.Take the time to explore the small dollar loan options. When trying to evaluate your lending options, it’s important to understand the difference between payday and installment loans.
What about further down the line?Most financial advisors recommend your savings include emergency resources equivalent to six months of income. Some suggest having even more to protect you in case a long-term illness or unexpected loss of job reduces your ability to bring in money.
What are the long-term effects?A well-stocked savings account isn’t just a tool insulating you from unexpected financial setbacks. It’s also there to help you tackle anticipated purchases or expected changes to your lifestyle.For many of us, a major change comes with retirement.Who hasn’t dreamed of the day they can stop working for good, living out their golden years in luxury? While most of us look forward to retirement, it may not be possible to retire if you don’t start saving now.According to a cross-sectional study of millennials, Generation X, and baby boomers and seniors, few people are on track to retire on time. A 2016 survey by GoBankingRates showed that more than half of Americans have less than $10,000 in a retirement fund — while one third of Americans report they have nothing at all.If the idea of working without an end in sight doesn’t make you want to improve your financial literacy, then think about the eventual payoff of enhancing your money management skills. With a better handle on your finances, you may be able to escape the stress of paying bills and unexpected repairs. You may even be able to splurge on fun things once you start contributing to your savings.But where do you start? That’s a good question!
A financial literacy primer: the building blocks of financial literacyLuckily, you don’t need a degree in economics to become an expert of your personal finances. Some of the fundamental concepts of financial literacy are based on fairly simple ideas.Knowing some of the following terms may help you make informed decisions regarding basic banking services, personal loans, and investments:
- Basic mathematical skills: Not only will this skill help you calculate how much of a tip to leave the waitstaff, but it can also help you determine how much interest you’ll accrue on online loans or savings. To learn more about interest on online loans, you can check in on our financial glossary of important terms.
- Budgeting: Knowing how much money is coming in each month and how much of it you’re spending is crucial to making ends meet.
- Inflation: This represents how much prices rise over time, but it doesn’t always explain substantial rate hikes. Millennials and Generation Z comparing their cost of tuition to what Baby Boomers paid know their education costs aren’t entirely to be blamed on inflation alone.
- Risk Diversification: It’s essentially an investor’s way of saying you shouldn’t put all your eggs in one basket. It involves varying your investment portfolio as a way to protect your money in case one or more of your funds crash.
Your road to financial wellness starts hereIf today is the first time you’ve heard of financial literacy, then all this post may have done is overwhelm you — which is natural! It’s a lot to take in, but it’s not as complicated as it seems at the outset.Once you wade in and start learning about personal finances, you’ll start to feel more comfortable with these concepts. With practice and hard work, one day you’ll count yourself part of the financially literate.As part of our own financial literacy campaign here at MoneyKey, we’ve developed a way to streamline your introduction to the basics. Here are five easy ways to dip your toe into the world of financial literacy.
1. Become the master of your cash flowEver feel like money has a way of vanishing in a puff of smoke? If your paycheck performs a disappearing act from week to week, the answer is in your cash flow.When you pay close attention to every dollar coming in and out of your hands, you’ll have a better grasp on where your money goes each week. If you aren’t sure how to go about tracking your expenses and income, check out our ultimate budgeting guide for help.A budget is instrumental in managing your cash flow. It will give you invaluable insights into your spending habits, showing you the good, the bad, and the ugly.By name alone, you’ll know the ugly is something you’ll want to eliminate from your budget. You may be able to do that by targeting useless purchases that do nothing but waste your money.
2. Build up short-term savingsIf you’re willing to sacrifice things like takeout or subscriptions fees, you’ll free up more cash in your budget. Although it may be tempting to reward yourself by splurging on a treat, these newfound dollars have a more practical use.Savings are an essential part of preparing for short-term financial goals — from going on vacation to paying for an emergency plumber over the winter holidays. If you have sizable savings, you’ll be able to pay for both of these kinds of expenses with greater confidence.But don’t worry if you ever fall short in an emergency. An installment loan or line of credit can act as a safety net for when you don’t have enough money saved up.To make sure your emergency fund has a better chance at covering your entire bill, put money aside in a dedicated savings account separate from your checking account. This way, you’ll be less likely to spend this cash on regular expenses.
3. Think about the futureShort-term loans are designed to help you with temporary financial slip-ups, but they aren’t meant to cover long-term financial commitments or expected life events.By this, we mean buying a home or retiring. Financial goals like these need a different approach, like mortgages and long-term savings.Here in the States, the government offers some tax incentives for people ready to start saving for their future. If you’re thinking about retirement, read up on traditional IRAs, Roth IRAs, and 401(k)s to see what tax perks come with preparing for retirement.
4. Understand how credit worksWhether you have a focus on immediate goals, or you have your sights on long-term ones, your credit history may have a huge impact on the opportunities you’ll have to achieve them.Most financial organizations rely on your credit score to assess your creditworthiness. A lower score may make it harder to receive financing for personal loans, credit cards, and mortgages. It may even impact your chances at securing a rental apartment or a new job, as employers and landlords may look at your credit score.A crucial part of your financial literacy journey involves learning how your credit score affects loans, as well as all matter of financial products and services. Take the time to understand why a good credit score is important, making special note of how you may improve your score as you learn.
5. Take an interest in financesThis step is the easiest one — you’ve already made good headway by sticking with this article to the end. It shows you have an interest to learn about your finances on a broader scale, so you can make better decisions about your financial future.But don’t stop here — check out these resources to stay on top of your personal finances all year round:
- Our resource center: We’re more than just a direct lender of online loans — we’re also a resource of financial information. Our site is a treasure trove of financial tips covering topics like budgeting, saving, and credit. Make this your first stop whenever you have questions about the financial basics.
- Money Smart: The Federal Deposit Insurance Corporation (FDIC) has a training program to improve your financial skills. Once you create a free login, you’ll have access to instructor-led modules covering bank services and other topics.
- MyMoney.gov: Explore the government’s five principles of good money management to earn, save, protect, spend, and borrow to your full potential.
Take the month to start positive financial habitsHow do you define financial success? While some people will say they’ve made it only when they can afford a mansion, fancy cars, and elaborate vacations, these luxuries aren’t required. At its heart, financial success can even look like someone who can pay the bills and prepare for the future.The chances you can do either of these without a solid understanding of finances are slim. It’s like trying to win a race when you’re forced to start 100 meters behind every other sprinter. Blind luck may help you cross the finish line first, but in all likelihood, you may come in last.Why limit your potential by purposefully staying in the dark about finances? There’s no pay-off to throwing this particular race.Take advantage of Financial Literacy Month and see what you have to learn about personal finances. What you pick up now may even your odds at achieving success. Just don’t stop learning once April rolls over into May. Financial literacy requires life-long learning.If part of your education reveals you need a short-term loan, you can get in touch anytime with one of our Customer Care representatives. Otherwise, good luck and happy Financial Literacy Month!
Posted in: Financial Tips