Why Financial Literacy?
According to an article written by Forbes in April 2018, “ 44% of Americans don’t have enough cash to cover a $400 emergency,” and “33% of American adults have $0 saved for retirement”. These numbers are an indication of how poorly Americans are doing at financial literacy. Financial literacy is the education and understanding of several topics related to personal finances such as making good economic decisions, making money, budgeting, investing, and planning for retirement.
Some trends that are making it imperative that Americans learn about
financial literacy are a changing environment, longer lifespan, and the wide variety of complex choices. The financial environment is always changing and being influenced by different factors which is why it is important to be ready for any big change that can impact one’s savings. Since people have begun living longer now, more money is needed for retirement than ever which is why it important to learn how to save all the money so people don't need to work in a job during post retirement. Lastly, financial institutions are offering a lot more complex choices that are sophisticated than the options of the past, and so having good financial literacy knowledge can help consumers make the right choice so they don't go into debt or lost money easily. Having strong knowledge on these topics leads people-Americans- to make beneficial economic decisions, stay out of debt, and save enough money for the future. However, a lack of knowledge on these topics can lead people to have mounds of credit and loan debt, and a negative outlook on a person’s future financial stability. People should be educated on these topics as early as possible, preferably once in middle school, so that they can start applying some of these personal finance tips in their own life early and then follow through with them in their adulthood.
For example, my father has always taught me at a young age to keep a budget and track my spendings. He made an online spending tracker for me when I was 12 years old, and I still continue to use it today. The financial plan allows me to see how much I am investing or saving each month, and it allowed me to take a step back and realize where I can cut down on spending or save more on. Thus, learning about financial literacy at a young age is going to help me develop good financial spending habits in the future.
Financial literacy is not just about budgeting to track spending/savings, but it is also about having basic knowledge on credit and debit, banking services and how to make good financial decisions. The system of credit can easily bring people into debt because of its easy convenience if people don't track their spendings with credit. People should know about different types of banking services such as the different types of accounts, how to write a check, and how to make a deposit because those skills are necessary for the true when a person is looking forward to opening a bank account. Clearly, having knowledge on financial literacy is important because it helps people make good financial choices for the future.