The days of cash transactions are slowly winding down to a close. Modern consumers are inundated with credit card offers and exposure to new financial instruments like cryptocurrency. Today’s consumers must learn how to navigate the financial landscape, or they may find themselves in a quandary of money woes. In this busy world, few consumers take the time to fully understand personal finance. Economists cite this circumstance as the top reason that consumers in the United States experience financial difficulties. However, lack of financial literacy is not only a problem in America, but around the globe.
Financial literacy encompasses an understanding of basic monetary concepts, such as savings accounts, credit cards and debt. Understanding how to leverage these things impacts household financial outcomes when consumers make important decisions, such as budgeting priorities, buying a home and saving for the education of their offspring. A general understanding of important concepts, such as credit and debt management can help consumers make financially responsible decisions. This knowledge can improve the quality of life for that individual’s household. Additionally, sound knowledge of financial principals empowers consumers to manage monetary risks and avoid costly money management mistakes.
Why Financial Literacy Is an Essential Skill
The number of factors that consumers must weigh when making financial decisions grows every day. Social Security is now considered a supplemental retirement income source that today’s workers hope will still be available when they enter their golden years, and most employers have abandoned the practice of setting aside retirement funds for employees without their intervention, requiring workers to choose and manage savings vehicles, such as 401(k) and IRA savings accounts. Additionally, people live longer now, thanks to medical innovations, and must consider this circumstance when calculating retirement needs.
So where does an income earner begin on the journey toward financial literacy? With the growing number of conflicting finance articles about bear markets, bull markets, bonds, fluctuating real estate markets, rising interest rates, falling interest rates, stagnant income growth, stocks, options and other financial information, preparing for the future can prove challenging and confusing for consumers.
The multitude of available credit card offers, mortgages and retirement vehicles are dizzying. Among the financial enterprises vying for consumer patronage are:
- Brokerage firms
- Credit card companies
- Credit unions
- Financial planners
- Insurance agencies
- Mortgage companies
In addition, retirees need bigger nest eggs to live comfortably compared to previous generations. These combined circumstances can be overwhelming for individuals who have not set aside time to learn their way around the topic of personal finance.
Learning about finance takes time and dedication. However, by starting with the basics, anyone can learn their way around finance issues and move a step closer toward securing their future.
Understanding the Basics
The first step toward financial literacy is learning basic terminology. This simple exercise helps consumers gain an understanding of the fundamentals of personal finance. A good place to find basic terms is a reputable website, such as Quicken.com or Bankrate.com. After learning a satisfactory amount of basic financial terms, consumers should then direct their energies toward improving their money management skills. There are few practical skills that all consumers should posses for managing current and future financial needs. However, the first important financial skill is developing the discipline to save money. This is arguably one of the most important personal financial skills for a consumer. To accomplish this, fledgling financial whizzes must learn to spend less than what they earn. As a rule of thumb, experts recommend that individuals set aside 10-percent of their earnings every pay period. This practice is commonly known as “paying yourself first,” and helps consumers save money toward future purchases and unexpected expenses.
Financial Literacy in the Workplace
Financial literacy can help professionals excel in their fields. Executives, especially those in charge of business units that are responsible for tasks such as accounting and payroll, must be adept at financial analysis. As an example, small- to mid-sized physician practices may require nurse managers to oversee important financial responsibilities such and inventory tracking and employee salaries. With growth in this field expected to rise more than 17-pecent by 2024, many of these professionals will need to include financial literacy in their skill sets. These organizational leaders play a pivotal role in ensuring the optimal performance of care provider establishments and improving community health outcomes
Current generations face an uncertain future. Lack of financial literacy can result in monetary pitfalls such as overpaying for important instruments like a home mortgage or failing to properly prepare for retirement. This makes financial literacy more important in the coming years. Fortunately, anyone can improve their financial literacy with effort. With a solid understanding of basic financial terms, and money management skills such as saving, budgeting and investing, consumers can successfully prepare themselves for mid- to long-term goals such as home ownership and retirement.