It is a vague and broad term that instructs people to learn more about money. The importance of it is fairly understandable, but where do you start?
Becoming financially literate can include educating yourself on anything from credit scores to auto insurance. The task, however, can feel daunting, time-consuming and unimportant amongst your other major responsibilities.
It has become clear that schools won’t be taking on the responsibility of filling in the blanks anytime soon. In a recent USA Today article, research cited that this year, the average score on a high school financial literacy test was 69%. Furthermore it noted that “twentysomethings” carried an average debt of $45,000.
That’s a lot of money and not nearly enough education.
For some it may seem simple: pay what you can when you can and save what’s leftover. While that reasoning makes sense, it doesn’t account for what could be lost by not understanding the basics.
Tackling the Information
Curling up with an economics textbook would probably do the whole nation a world of good, but realistically, no one is going to do that. No matter how important we know finances to be – especially in the wake of an economic crash – it is hard to convince yourself to dedicate time to furthering your own knowledge on the subject.
Instead of tasking yourself with learning all there is to know about money, take on the information that is most relevant to you current financial needs.
If you’re in need of a new car, start reading everything you can find on auto loans and insurance.
If you’re deep in credit card debt, begin exploring all of the options available to you and start developing an intelligent strategy.
If you or your child is about to enter college, find all of the information you can on student loans, , grants scholarships and the cost of college.
Becoming financially literate doesn’t have to be a giant dive into the economic world. It can be a situational-driven, step-by-step process that builds over time.
The consequences of ignoring the need, however, can be very greater than the minimal time spent learning the basics and applying them properly.
The USA Today article featured a statement made by National Endowment for Financial Education CEO, Ted Beck:
Financial Literacy in Credit
The area where most people get into trouble is when they are borrowing money. Whether it’s a credit card, a payday loan, a mortgage or cash from a relative, people without the proper education can get trapped in debt quickly.
The root of this problem isn’t laziness, carelessness or selfishness, though. The issue is a lack of financial education. Even people with Master’s degrees and Doctorates can suffer from this. Consumers often apply for loans and accept them without actually understanding what they’ve agreed to. It is within that knowledge gap that issues arise.
If you don’t truly understand the impact an interest rate will have on a loan, how can you be prepared for the payments?
When you’re unsure of what the late payment penalties are, how can you be expected to handle them?
If you’re repayment period is just an arbitrary number in the back of your mind, how will you know where your finances will be in the months to come?
It is crucial that borrowers are able to read terms and service agreements and truly grasp what they are agreeing to. Before you even apply for a line of credit, you should be spending time familiarizing yourself with the vocabulary and operations surrounding that type of loan. Additionally, it would serve you well to get a feel for the timely information revolving around the product.
Read news articles, reports and testimonials so you can get a broad view of what the risks and benefits are in today’s economy. For example, someone interested in a home refinance needs to know that rates are at an all-time low right now. However, reports have stated that the interest rates will be increasing in 2023. This information is crucial to determining the best time for a refinance.
Make sure you’re taking in as much information as possible before you make your next financial move. It is much easier to invest the time into learning first than it is to have to catch up after a mistake has been made. Financial literacy gives you a level of security that banks, lenders, regulations and bills will never be able to fully provide.…