Financial literacy is important for many reasons. This includes being prepared for emergencies, managing debt, and creating wealth. Did you know that 36% of Americans are not financially literate?
The following is a quick summary of the main components of Financial Literacy: knowing how to earn, spend, borrow, save, and protect your money.
Earning & Spending
There are many different ways to earn money. One big way to earn money is with a job. However, it is also possible to earn money by running a business or investing your money. In addition, there is more than one way to invest your money. This includes High-Yield saving accounts, Certificates of Deposits, Money Market Funds, Government bonds, and more. There are various ways to earn money by investing instead of working.
It is important to know how to spend money. The best way to spend money is to plan before you spend it. This can be done with budgeting. Budgeting can not only prevent you from running out of money or spending more money than you would like, it can also help you save for different things.
Borrowing
Borrowing money can help in different situations, but it can make situations worse if it isn’t done the right way because it can lead to accruing debt. Being in debt can cause problems such as making it harder to buy a car or house. People in debt are also more likely to suffer from depression and anxiety. When borrowing money either from a bank or credit union, it is important to immediately make a plan to pay it back on time. You can do this by creating a budget and checking for opportunities to refinance.
Saving & Protecting
There is only so much that you can do with money if you spend it as soon as you earn it. Knowing how to save money can be beneficial, especially in the long run. Another great thing about saving money is that there are multiple ways to do it. A simple strategy is to budget and plan how much money you want to save each month. However, there are more complex and effective ways to save your money. Opening a Money Market Account or Certificate of Deposit (CD) will allow you to earn more interest on your money than a regular savings account.
Earning and saving money is important, but it doesn’t matter if the money isn’t protected. A good way to protect your money is to beware of scams. You should always be careful about giving out personal information, especially online. Some scammers will use fake emails or pose as government employees and ask for your information in an attempt to scam you. Another thing to beware of is your credit. Getting a credit report annually is important for avoiding unexpected issues regarding loans and other financial arrangements.
More Information
Learning about how to manage money can be very beneficial. It helps prevent future financial-related stress, and it also helps with saving for retirement as well as making large purchases. Essentially being financially illiterate can be incredibly expensive. People with limited financial knowledge have higher rates of both debt and bankruptcy. Learning more about how money works and how to manage it can have a positive impact.