Many Americans are making financial decisions with only a minimal knowledge of financial basics. Banking, budgeting, saving, credit, debt, and investing are the foundations of most of the financial decisions that we all make in our lives.
Financial Literacy in America
Trends in the United States indicate that Americans’ financial literacy is declining. In its National Financial Capability Study, conducted every few years, the Financial Industry Regulatory Authority (FINRA) poses a five-question test that measures consumers’ knowledge about interest, compounding, inflation, diversification, and bond prices. In the latest study, only 34% of those who took the test answered at least four out of five questions correctly.
It has been said that knowledge is power, and if that’s true, then too many Americans lack the power to control their financial futures. Financial success rarely happens by accident. On the contrary, it is typically the outcome of a journey that starts with education.
While we know that the earlier you learn the basics of financial literacy, the more confident and successful you’ll be with your finances later in life, it’s never too late to start learning.
Why is Financial Literacy so important?
Financial literacy is the ability to understand how money works. This means the knowledge to make use of a variety of financial skills, including personal financial management, budgeting, and investing. Achieving financial literacy can help individuals avoid making poor financial decisions and help them become self-sufficient and achieve financial stability.
- Personal financial management is where financial literacy translates into individual financial decision-making. How do you manage your money? Which savings and investment vehicles are you using? Personal finance is about making and meeting your financial goals, and it involves banking, budgeting, handling debt and credit, and investing.
- Understanding the ways credit and debt work for and against you are some of the first steps toward understanding personal finance:
- Debt is an integral part of anyone’s financial arsenal. It is a tool like any other: when used correctly, it can be quite useful. However, when used incorrectly, it can spiral out of control. According to a 2021 CNBC report, the average American has $90,460 in debt.
- Credit allows you to borrow money to make such purchases as buying a house or a car, or to borrow money for other needs.
- Credit score is an evaluation determined by a person’s debt, credit usage, and payment history. This number governs creditworthiness to banks and other financial institutions gauging the potential risk that could come in lending money or services.
- Budgeting is one of the most effective ways to understand and regulate your spending, saving, and investing. You can’t begin to improve your financial health if you don’t know where your money is going, so start tracking your expenses against your income, then set clear goals.
- Investing is a financial strategy in which a person commits money to things such as stocks, bonds, mutual funds, exchange-traded funds (ETFs), certificates of deposit (CDs), real estate, or cash for long periods to earn a financial return. This essentially means that you invest money to make money and achieve your financial goals.
We have been helping families in Western New York for decades. Our local advisors have the knowledge and experience to educate and guide investors in the many options available to help them determine the best route to help achieve their goals.
We welcome you to reach out to us with your specific needs and questions so that our advisors can put together a recommendation to help you achieve your goals. CONTACT US