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Financial Literacy and Success with Your Finances
Financial Illiteracy is a big problem that can lead to debt
People are beginning to realize how much financial illiteracy is a problem for people as they become adults. There are classes for all kinds of things, but people are hard put to find good classes offered at the high school level for everyday finances. If you do find a school with it, its not a mandatory class usually. Last count I heard, there are less than a dozen states in the United States that even make such a class mandatory for their students. What ends up happening is the kids grow up, and get out into the world ill equipped to handle all that there is to handle regarding finances. Its heartbreaking to observe some lose their homes, or drown in debt and become very discouraged.
The good news is that more are recognizing it, and trying to change things. I have heard of summer camps for kids in fifth to eighth grades that are all about finances. What a novel idea! They learn to deal with money, and think better in regards to money. The least we can do is to help our own children or any children in the next generations to be better stewards of their money. If you think about it, our whole economy would do better as a result. I am very impressed by what I heard about some of the things they were teaching the kids, like to not just try to get a good job, but to help and create those good jobs! Talk about helping out the economy and the ripple effect it could create which helps out the whole country longer term.
Focus on some key things
In order for people to make sound financial decisions we need to be as financially literate as we can be. For instance, understanding that financial success isn't just the amount of money you take home, but what you do with it once you get it there. I bet it would be fair to say that a large portion of the population has had no formal financial literacy training. You just won't have it, unless you have gone and sought it out for yourself. Being self taught in such things is great however. We can gain access to so much through our local public libraries for free, for instance. There are no excuses for ignorance of the subject anymore.
The public needs to be able to make informed financial decisions, such as how to go about shopping for a good mortgage. Other things to know would include how to plan for retirement, or using credit cards appropriately and not get deep into debt. In order to become financially responsible, people need tools, and budgeting skills. Imagine all the financial disasters that could be avoided just by some basic education.
Some Basic Terminology and things to keep in mind
Learning some basic terms can be helpful in beginning to be more literate in financial matters. For instance, the term "compounding" means more interest is being added to the interest you have already earned. "Rate", is what you earn on a CD or savings account before compounding is included. Or you can think of it as the interest you are charged on a loan. The word "yield" is the interest you earn after the savings rate has been compounded.
APR stands for annual percentage rate and is usually associated with loans. Its a mathematical formula that includes other charges on a loan. This is in addition to the interest rate. APY is the annual percentage yield. This is the total amount of interest you earned on an account in one year's time. When you hear the word "index", it is referring to a well known benchmark. For instance, the prime rate that financial institutions use to set their interest rates. This is of interest because the rate of what you earn is dependent upon the changes in the index.
People will give all kinds of financial advice, especially on investments. No matter how that advice comes to you, be it a neighbor, the television or newspaper, take it with a grain of salt and do your research first before making any big decisions financially. Sometimes, analysts and brokers have their opinions and ideas, but still be dead wrong. Its not always easy to predict how the market will go.
Always keep an eye on the leading economic indicators and key interest rates. These influence the stock market, general economy and the banks rates. Always keep in mind what your broader financial goals are. This will help you to know if you have any money to play around with or not in regards to investing. It helps you to be more aware as you consider risks, in case the market should drop. Lastly, as sated before, ask questions. Its only wrong to not ask a question, especially if you don't understand something fully. Go ahead and ask your banker, broker or very trusted friend or family member at the very least. You might just get an answer, and learn something else on top of that. Especially don't be shy about asking about any and all possible fees in relation to anything financial. Those extra fees can add up, and once you see them may be too late to deal with or just get ignored as life stays busy.