What is Financial Literacy?
Why, Where, Who, When, How, and How Much
Financial Literacy is the knowledge that is needed to make sound financial decisions that affect your daily life through all the years of your life. Basic financial literacy includes, but is not limited to, knowing knowledge of a CREDIT (an amount received or added to your account) and a DEBIT (a payment made and removed from your account or a payment owed). how a CHECKING ACCOUNT works, understanding your BALANCE SHEET and how your assets minus your liabilities equal your net worth, understanding the cost of CREDIT ARRANGEMENTS for money made available to buy things with payments instead of paying in full when buying, using CREDIT CARDS responsibly, AVOIDING DEBT, and the importance of and the many ways of SAVINGS and how COMPOUND INTERESTS WORKS FOR YOU. There, that was easy!
As you can see, Financial Literacy impacts your daily decision making as you try to balance a budget, provide for security in the purchase of a home, save for your or your children’s education, and plan for your retirement.
Most people when doing retirement planing, including myself in the past, rely on Social Security to be a major source of income for retirement. You and your employer each pay a 6.2% Social Security tax out of every paycheck you receive. Yours is a deduction from your paycheck on up to $117,000.00 of pay in a year if you are fortunate to make that much, and your employer’s is a contribution. However, the amount received when you collect Social Security is simply not enough to support your retirement with all other things considered such as a mortgage you still might be paying, or rent to pay, and utilities, and cable tv with all those premium channels, and internet, and cell phone, groceries, gas for the car, car insurance. You’ll be saying, “Help me. I’m drowning!” Oh, and don’t forget health care insurance, copays and deductibles.
You are your employer are also now each paying a 2.9% Medicare Tax on every paycheck on your entire earnings for the year. Then, even when you and your employer have paid into Medicare, when you are ready to receive Medicare, the cost of your Medicare Insurance is deducted from your Social Security Check. Oh yes, then Medicare only pays 80% of reasonable medical costs, and you have to pay out of pocket for a supplemental medical policy to cover the other 20% of costs, plus pay for a Prescription Drug Plan, co-pays and deductibles.
Yes this is all confusing. You should read the “Medicare and You” handbook which in 2016 is 162 pages. A new one comes out every year with changes. My wife pays $105.00/mo for Medicare Insurance, another $56.00/month for a secondary insurance. Prescription Drug Plan Premiums in the handbook range from $39.10 to a Premium of $105.00 month with additional copays and coinsurance. Do you see your Social Security income check shrinking when you start to budget in health care costs?!
In addition, it is a fact that the Social Security Board of Trustees reported that by 2033 the Social Security trust fund may be depleted. This is a wake-up call to many young adults who should be contemplating other means of securing a comfortable retirement. This underscores the need for more financially educated young adults, who at the minimum, understand the basics of personal finances. Recent trends are making it more imperative that we all understand basic finances because we’re all being asked to shoulder more of the burden of investing in our futures. And because people are living longer it means you need more financial planning than prior generations.
In addition, money management is in an ever changing environment with the technological advances and on-line banking. There are many more choices with banks, credit unions, brokerage firms, insurance companies, credit card companies, mortgage companies, and other financial services all vying for your money and creating confusion for the average person. Bottom line, what I’ve found is any improvement in my financial literacy has had a profound impact on my ability to provide for a more comfortable future while avoiding the pitfalls of debt.
I found that becoming financial literate was crucial for my wife and my survival into the future. Putting away enough money to ensure we have adequate income in retirement, at this age, has become a major collaborative undertaking that is carefully planned and designed to achiever a particular aim we have chosen for ourselves. We have to ensure we avoid borrowing and not have levels of debt that would decrease our wealth with the cost of interest and paying unnecessary fees.
Often individuals with low financial literacy believe that they are far more financially literate than they really are. Those with low financial literacy tend to buy more on credit, are unable to pay their balance each month, end up spending more on interest fees, and have a poor understanding of the terms of their mortgages or loans. The financially illiterate tend not to invest, and have trouble with debt. I know because, at one time, I was there just as you might be today. Do you know how many times I have said, “I wish someone would have told me that when I was younger!” “Where was I?” “What bus did I miss?” I have made it my mission to help as many as I can never to have to ask themselves those questions. I want them to be
BUILDING WEALTH AND FREEDOM AT A YOUNG AGE WITH FREE FINANCIAL LITERACY IN PLAIN LANGUAGE.
That is why FreeFinLit101’s MISSION is to inspire youth and their families to educate themselves on the basic financial tools available that will carry them through every stage of life.
That is why FreeFinLit101’s VISION is envisioning financially educated people, regardless of their background or social economic status, better positioned to take control of their personal money management, improve the quality of their lives, and ensure financial security for themselves, their families, communities, and countries.
In conclusion, becoming financially literate is not easy and it’s a task that requires constant updating and unwavering monitoring. It will follow us to the end of our days here on earth, but being aware of your personal finance will ease the burden and pain tremendously along the way.