Why financial literacy matters, from saving to paying off debt

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To achieve financial success, knowledge is key.

Yet many Americans lack financial literacy. This can affect everything from the amount of money you save to the amount of debt you owe.

The situation is dire for many. According to a January poll, more than half of Americans can’t afford a $1,000 emergency expense through savings bank rate found. Now, about 20% of employees run out of money before their next paycheck, according to Salary Finance. That’s an increase of 15% over the last year.

Meanwhile, US adults answered only 50% of the questions correctly TIAA Institute-GFLEC Personal Finance Index in 2021, a recognized measure of financial literacy. That is 2 percentage points less than in the previous year.

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“Financial literacy can help Americans feel confident in the decisions they make every day,” said NFL linebacker Brandon Copeland, who teaches a personal finance course at his alma mater, the University of Pennsylvania.

“In order to expect success in anything I do, I must first understand the rules and guidelines of this game,” he added. “The same goes for understanding money and how it works.”

building good habits

Today, Americans are still grappling with the aftermath of the The Covid-19 pandemic and resulting inflation is costing the average US household an additional $296 a month, according to an analysis by Moody’s Analytics.

Still, there will always be something that could disrupt your life, said Nan Morrison, president and CEO of the Council for Economic Education.

“There are many things that can impact your income or the world around us, but making a decision right now isn’t really going to help,” she said.

“Having formed the good habits you need early in life will help you get through all of these changes.”

These behaviors include understanding where you stand financially, building a budget, and saving for emergencies.

Save and invest

Married couple hugging on the sofa

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Knowledge is also power when it comes to investing. When trading Meme stocks and cryptocurrency have become popular, it’s important to remember that long-term saving is vital to your financial health, said certified financial planner Cathy Curtis, founder and CEO of Curtis Financial Planning in Oakland, California.

It was something she recently advised her new hairstylist to do after he confided in him his fears about money and concerns about his family’s financial stability. The stylist, in his mid-40s, was invested in a fintech company’s stocks and crypto via a popular trading app, but had no pension or life insurance.

“If my barber knew the basics of Roth [individual retirement accounts]For example, if he started many years ago, he would be so far ahead,” Curtis said.

“Without a basic financial literacy about the power of compound interest, what types of savings and retirement accounts are available, and the importance of starting saving early, the financial future of many Americans looks bleak.”

relationships help

Couples can have different thoughts about money. When there is mismanagement of finances or disagreements about how to use money, it can lead to conflict.

“Many couples have a hard time talking about money, and if the couple lacks financial education, there can be a lot of financial missteps,” says the licensed marriage and family therapist dr George James, Chief Innovation Officer and Senior Staff Therapist at the nonprofit Council for Relationships.

“A better understanding of financial literacy can help relationships build a future and be on the same page,” he added. “It can also reduce the amount of conflict.”

Personal finances at school

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Advocates believe it’s important to start learning good financial habits from a young age, and there’s no better place than school.

Twenty-five states require students to take personal finance courses, either in a standalone class or integrated with another course, the state said Council for Economic Education. Last week, Florida was the last to sign legislation mandating a graduation course.

In addition, 46 personal finance bills are currently pending in 21 states The next generation invoice tracker from Personal Finance.

The effects of this education can be demonstrated in several studies, proponents argue. It has been shown to reduce the likelihood of consumption payday loan in young adults and is positively correlated with Wealth Building at 25 years.

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