Achieving financial literacy

Solid sources, access important to acquiring information – In an age of cryptocurrency, a shifting global market and speculation about a recession, financial literacy can aid in navigating the economy. According to Investopedia, “financial literacy is the ability to understand and effectively use various financial skills, including personal financial management, budgeting and investing.” Being financially literate both improves one’s relationship with money and provides a foundation for economic success. Although financial literacy is seen as a helpful skill, the National Financial Educators Council reported that only 48% of 17,000 participants passed a 30-question test on topics like budgeting, bills and financial goals. To address this lack of financial literacy, the youth must be educated on financial skills early on – rather than learn these when they are one of the 340 million Americans submerged in some form of debt.

Stocks & investing

Gaining or losing. All a risky game. The Stock Market. Everyone has heard of the Great Depression and something along the lines of “the market is bad.” So why do many people invest? The stock market can be a way to gain money if investors are properly advised and make well-thought-out decisions.

Earning money from the stock market is an unpredictable but potentially rewarding system that can protect earnings from inflation, increase income and build savings. The stock market has no age limit, so teenagers and younger individuals can invest. Involvement of the younger generation is seen as a positive, according to Forbes, allowing the generation soon to be deemed adults to gain financial knowledge .

In addition, according to U.S. Securities and Exchange Commission, when individuals are in the stock market for an average of 15 years, they can expect to see continuous and large profits if they invest properly.

Credit accounts & retirement

Financial literacy includes investing in the future by opening credit and retirement accounts. Though these may sound like administrative tasks of middle-aged professionals, Western and Southern Financial Group says it’s never too early to open an individual retirement account.

An IRA is an account for retirement savings, where investments are tax-free or on a tax deferred basis. People typically begin their IRA journey during the prime working years of 35 to 60 when they have adequate funds to open an account. However, IRAs do not require a minimum contribution and payments can be temporarily paused if other expenses arise. Students can give themselves a headstart on an IRA, since there is no minimum age. Investments into an IRA can be made at a maximum of $6,000 per year through earned income, like summer jobs or babysitting.

Credit accounts, or credit card accounts, are another step in beginning a financial journey. Holding a credit account has benefits including purchase protection, and incentives like rewards points or air miles. Making larger purchases is also easier through credit, as it defers payment and offers the option of monthly installments.

Building a good line of credit, by paying the full balance and managing payments on time, gives banks and financial companies an idea of a loan applicant’s creditworthiness. Essentially, a good credit score provides better loan and credit opportunities. Yet credit cards also have disadvantages, like high interest rates, credit card fraud, hidden costs, and the ease of overuse. Financial literacy and understanding how to handle credit, like steering clear from impulse purchases, saving for emergencies, and reading the fine print of a credit agreement, can help avoid these drawbacks. With earlier education on handling a credit account and making informed financial decisions, individuals could achieve wider financial freedom.


Budgeting & debt

The idea of “give and take” encompasses a number of financial decisions, including budgeting. Whether a budget is for monthly grocery expenses, a wedding dress or a home, budgeting is another feature of finances that concerns both the long-term and short-term future. Although there is a sacrificial nature to budgeting, a budgeting mindset is key to a low-stress lifestyle surrounding finances.

A budgeting mindset, according to Dr. Barbara O’Neill, a specialist in financial resource management at Rutgers Cooperative Extension, is “setting overall limits for spending and finding ways to live within your plan.”

In simple words, budgeting can prevent debt: When income minus expenses yields a positive number, it guarantees one is not spending more than one is making. Through a budgeting mindset and methods, it’s easier to obtain a good credit rating.

One way to adopt a budgeting lifestyle is to create a list of earnings per month, whether from employment, investments, or additional income sources. After finding a total of monthly income, make a list of expenses, including fixed housing or insurance payments and flexible expenses like food and transportation. Using a bit of math, dividing these costs by 12 will produce monthly budgets to maintain.

Another basic step to budgeting is making realistic goals, both short and long term. Setting goals offers something to strive for financially, like paying off extra on student loans, a car down payment, or a vacation. Because budgeting includes prioritization, it can help incorporate allowances for extra personal items, like clothes or dinners out.

“Don’t think of a budget as restricting, but as freeing!” said Elizabeth Dawson, CEO of Copia Wealth Management and Insurance Services. Although budgeting can feel limiting, a positive outlook on the possibility of growth and financial stability can change these emotions to optimism. Allotting extra funds from a budget to an IRA, emergency fund, or college savings can help ensure a stress-free and stable future.