“Financial illiteracy is not unique to any one population. It affects everyone; men and women, young and old, across all racial and socioeconomic lines. No longer can we stand by and ignore this problem. The economic future of the United States depends on it.”—President's Advisory Council. Below you will find tips and links to resources on Financial illiteracy—why it's a problem and how to avoid it.
Some statistics from surveys about financial illiteracy in the US are as follows:
As per 2014 Consumer Financial Literacy Survey, conducted by The National Foundation for Credit Counseling (NFCC):
- About two in five adults keep track of their spending;
- Only about one in three adults (about 59%), give themselves Grade A or B regarding their knowledge on personal finance;
- The survey also revealed that in the year 2013, more than 54% of adults neither viewed their credit score nor their credit reports which are considered to be essential aspects of managing personal finance.
- A survey, conducted in the year 2012, by FINRA Investor Education Foundation, found that about 56% people didn’t have any savings for the rainy day.
- A survey has concluded that 40% of Americans do not save for retirement.
Financial decisions are becoming more complex due to the ease of spending, confusing investing options, fluctuations in markets and inflation, etc. You need to be financially literate in order to navigate many important decisions with confidence.
Here just a few reasons of why you should work to become more financially literate:
- Relying on Social Security is not a good retirement plan- A few years back, people could depend on Social Security as a source of income for retirement; but, nowadays, it’s not adequate. As per the reports of Social Security Board of Trustees, by the year 2033, the Social Security trust fund may be diminished. So, it’s advisable you make good investment decisions and save instead of relying only on Social Security as a retirement plan.
- Financial Literacy helps you make proper decisions- Nowadays, consumers have to make decisions about various financial products. It may be choosing the right credit card or selecting the best investment option. Remember, your choice of investments will determine whether or not you’ll be able to achieve your financial goals. Moreover, financial literacy is crucial for people so that they have adequate income for retirement, they can avoid falling into aggressive consumer debt problems, and so that they can avoid the devastating repercussions of filing bankruptcy.
- Learn how to save & free up cash by making better choices- To have a good financial future, it’s necessary to save. You should save a set amount ~10% or however much you can, then spend the rest. Save first, spend after. Researchers have found that people with relatively lower financial knowledge tend to purchase on credit and spend more on interest fees; whereas, people with adequate knowledge can compare the financial products and choose the most suitable ones, which they then pay less for.
- Learn how to get out of debt as soon as possible- Compound interest is a very powerful thing. You can read more about it here. You should do everything you can to avoid paying compound interest and alternatively, you should learn to invest to earn it.
- Plan on the increasing lifespan of people- In comparison to previous generations, the average life expectancy has increased. Therefore, you should work to have an adequate source of income to sustain and maintain yourself and your spouse in the often-more-lengthy-post-retirement-years.
Along with understanding why financial literacy is important, you need to know how to enhance your financial knowledge. To do this, you can read many of my financial blog posts found here or take my financial fitness boot camp course here.
Financial illiteracy is a problem but there are many ways we can avoid it. I hope this article (and linked to resources) will help!