How to improve basic financial literacy

The importance of financial literacy is often stressed. Financial literacy means having the ability to understand the money issues you’ll face in your life, and being equipped with the skills to navigate your finances effectively. When you are financially literate you can confidently manage budgets, debt investments, retirement, emergencies, and savings. Unfortunately, most Americans don’t have enough financial knowledge to manage their money. 76% of U.S. citizens don’t believe they’ll have enough money to achieve a secure retirement.² 

So, why is it important to be financially literate? Here are some important factors to consider.

Budgeting

If you’re struggling with finances and living paycheck to paycheck, part of the problem could be simple math. You may be spending more than you’re bringing in. To achieve financial literacy, you must first start by assessing your finances and understanding the value of a budget. A budget will help get you on track with regards to paying your expenses, eliminating debt, and saving for goals. In other words, it’s a tool for money management. With a budget, you’ll be able to track spending and adjust it as you go to ensure you aren’t spending beyond your means. Knowing where your money is going and directing it where it needs to go is a big, initial step toward financial literacy.

Paying down debt

Most of us owe something, whether it’s a mortgage on a house, credit card bills, auto loans, or college loans. To be financially literate, you need to be able to understand how loans work and recognize the value in finding the lowest interest rates when reviewing terms. Financial literacy gives you options. It will help you discover the best methods to get debt-free with solutions like transferring your credit balance to lower interest card or debt consolidation. Paying off your balances each month helps prevent interest charges and positively affects your credit score, which gives lenders a fast, objective measurement of your credit risk. Good credit can help you secure loans faster, give you more credit, and lower your credit rates overall. Be sure to check your credit score often, as well as your credit card balances and your bank accounts, to stay on top of your finances. 

Preparing for emergencies

Nearly three in ten Americans have no emergency savings at all.¹ Unexpected events can have a dramatic and lasting effect on your financial future if you aren’t prepared. When you’re financially literate you’ll understand how crucial an emergency fund is to prevent debt from accumulating when unexpected expenses arise. Creating an emergency fund that includes three to six months of expenses will help see you through life’s many curveballs.

Planning for retirement

When it comes to retirement, being financially literate means you know how to make a plan to save enough money for your nest egg and you understand what types of accounts can aid in your goals. You’ll also know what expenses to look out for when you are planning for retirement. Many Americans don’t have a realistic idea of how much money they’ll need to cover expenses and live comfortably once they leave the working world. Taking the time to determine a target amount to save is a good first step that will help you figure out how much you need to save every month. As a financial literate you’ll be likely able to calculate how much you’ll need to live the lifestyle you want when you leave the workforce. 

Getting started

If you’re looking to become financially literate, there are a variety of tools and resources that can help you. Look for local educational programs on financial topics offered through credit counseling agencies, financial websites, or government courses, such as the FDIC's Money Smart financial education program. 

A budgeting app is also a good way to get started. It will keep track of your spending, create budgets, and help get your finances under control. Many applications are designed for general personal budgeting, but each app may offer you something else, such as the ability to track your bills and alerts when you are close to over-spending.

Working with a financial professional

If you feel you need some help or guidance, don’t be afraid to seek it out. Consider working with a financial advisor, who can assist with planning, savings, retirement, and paying down your debts. To find the right agent who fits your needs, submit your information through our find an agent page.

Assessing your financial literacy

Do you want to know if you’re financially literate? Ask yourself these questions:

• Do you know how to create a monthly budget?
• Are you actively trying to reduce your debts?
• Do you have an emergency fund?
• Do you know what insurance options are available that can help protect your finances and investments?
• Do you understand how investments work?
• Do you have a retirement savings plan?

There are many benefits of financial literacy and learning some basic principles can greatly help you better your finances. By taking some simple steps today, you may be setting yourself up to reach the goals you have for the future.

1. Source: Bankrate, 2019
2. Source: National Institute on Retirement Security, 2017

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REV 10/2020