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Understanding Personal Finance

Updated on September 7, 2014

Necessities vs. Luxuries

Before an individual can begin to grasp, understand, and develop a successful application of knowledge to Personal Finance, that person must understand a basic premise --

The premise to firmly understand encompasses the goal to become financially self-sufficient, followed by the opportunity to develop income streams to support an advanced quality of life, retirement, and in come cases, charity and other non-profit projects.

One of the support beams in the foundation of these goals it to know and understand the difference between necessities and luxuries. Many have not yet considered that distinction, since America has become a land of conspicuous consumption and some of our Cable TV programs encourage this phenomenon.

Millions in America haven't a clue.


The National Financial Educators Council defines financial literacy as: “possessing the skills and knowledge on financial matters to confidently take effective action that best fulfills their personal, family and global community goals.”

Free Lesson Plans are avaiable at the above link.

Financial Literacy

American high school curricula across the nation have changed in the last 20 to 30 years, adding Work Readiness instruction that includes Financial Literacy.

These classes are meant to help students learn what it takes to seek, find, and hold a job and how to live on a year's earnings without borrowing. In short, Financial Literacy classes help a student to become financiallly responsible and self-sufficicent.

When Welfare Reform began during the Clinton Presidential Administration, Work Readiness and Financial Literacy classes were instituted in many communities, beginning in Kindergarten.

The rationale for K-12 Work readiness was that the schools were to instill the knowledge that Everyone Will Work in America, married or single - everyone. This included the most severely physically and mentally chanllenged people. The concept, when applied, did not work.

In Central Ohio for instance, 400 families were booked for removal from public assitance rolls in 1998, but the members of most suffered physical and mental challenges preventing 1) work, but were not disabled enough to 2) qualify for disability income awards.

However, the school-wide world-of-work and Financial Literacy training helped many students and their families complete a budget and stick to it.

Who Among Those That Need Financial Literacy Can Be Helped?

Gradually, America's youth are becoming finance-savvy, but members of our long-term public assistance rolls are continuing to experience difficulty in understanding real earnings, costs, and savings in a subsidized world.

Another population sector at odds with successful financial navigation is that of the suddenly widowed that never worked outside the home and had no access to the household financial records. This includes women and stay-at-home fathers as well. many of these spouaes or partners haven't a clue about their partner's income or household expenses.  

A portion of our Disability Income recipients also have little grasp of financial realities. A lack of activity caused by many physical and mental challenges can increase immobility, increase health problems, and decrease comprehension. Some of these individuals become the victims of consumer fraud quite easily. Others do not know the dollar amounts of their income and/or expenses. Some are supervised by quardians, while others are not.

Another sector of our population that have little understanding of personal finance is a portion (a sector, not all) of homeschooled youth, while other sectors of the US population could also benefit from Financial Literacy. 

Impact of Financial Literacy

The Wrong Way to Learn

I had no financial literacy classes in school, but I learned about a passbook savings account on my own. Having no idea what life costs in the real world when I graduated from high school and worked my first full-time job, I literally spent nothing, except for rock bottom basics.

I found a rooming house 1.6 miles away from the job and walked to work. Two meals daily were included in the rent and that was plenty. Health insurance was provided by work, so I needed to spend only a small amount on toiletries and laundry. In this way, I saved enough in a little over two years to be able to afford a college degree. Along the way, I learned about checking accounts; also that I disliked credit cards and the errors of their billing. Financial literacy came piecemeal at best.

A Worse Way to Learn

A colleague of mine had a rougher financial time. He went straight to college and his father provided him with a credit card.

My friend never saw a credit card statement and did not add and keep his receipts. He had no idea how much he was spending. The week after graduation, he received the current statement with a note that his father would no longer be paying the bill. He started his first job buried far in the hole of severe financial debt.

These are stories of two extremes - impossible non-spending, and unregulated spending, Both could have been avoided with an effective financial literacy class in high school or college - but none were offered by school or parents.

Subsidized Living Provides an Unreal Picture

I taught Work Readiness and Career Advancement courses to adults and teens, sitting in on Financial Literacy classes offered by banking officers that volunteered their time to the classroom. These classes were effective and helped many students. The same classes were given to public assistance recipients regularly, attendance often required as a prerequisite for receiving the next month's check. This requirement helped many people as well.

Public assistance recipients can live in an unreal world, where subsidized rents are very low and incomparable to actual rents in the city. When using Food Stamps, most do not combine them with coupons or purchase specials or the healthiest foods. A number tend to buy the highest-priced goods until their Food Stamps ran out. Then they use food pantries. Using Medicaid at their physicians' offices, some never see a bill for actual costs, or they do not read them. Some long-term DIsability Income clients have had the same experiences.

Click thumbnail to view full-size
Depression era soup line.
Depression era soup line.
Depression era soup line. | Source

I see some disability clients spend monthly Food Stamp allotments, use food pantries in several parts of town, accept bags of groceries from church members, and then go to restaurants for at least 4 evening meals per week. Many individuals receive Medicaid or free medications from programs in the community or through pharmaceutical companies and are unaware of actual costs. All this seems to be not only poor stewardship and financial management, but also results in working people becoming quite angry with those that do not or are unable to work. Much animosity is boiling in America over these issues.

Some disability and public assistance clients also have huge Cable TV/Internet/telephone bills and, therefore, cannot pay their rent/mortgage, water bill, or electricity on time - or at all. The payment method some use is to divide all monthly bills into two groups and pay one group each alternating month. Using this method, bills remain one month behind and interest expense accumulates for late payments. Often, the Cable is revoked, the electricity disconnected, and the house goes into foreclosure (a renter is evicted).

Individuals and families without a frame of reference for financial literacy must be detected and aided early on in order to prevent these sorts of tragedies.

The Suddenly Widowed

I was surprised with one client who, at age 56, was widowed and had no knowledge at all of the household finances. She had never written a check and had no understanding of savings accounts. Her reading level was grade 6 and she had worked only a few years in diners after dropping out of the 6th or 7th grade. Her husband, 20 years her senior, had handled all of the family finances and had arranged for her health insurance (part of his retirement package) to end when he died. She was in dire straits

Imposed financial blindness of one spouse or partner on another is not a good or effective activity, even if it allows the controlling partner to prevent potential losses of a spendthrift or ill or mentally challenged person. These days, it is considered financial abuse. The woman mentioned above became nearly destitute, but was made the object of two legal guardianships. Unfortunately, the first guardian mishandled funds. The second was a firm of attorneys that righted the situation.

Victims of domestic abuse and/or violence, once they leave the situation, can benefit from the Financial Literacy classes offered by domestic violence shelters in many cities. Churches also often offer these classes as another location choice.


Homeschool is one way for families to drop out of mainstream society and its growing problems with in-person bullying and cyberbullying as well as to stand against curricula they find offensive. However, does homeschooling prepare a child for the world of work? A continuing debate drones on the topic of whether a homeschooled child can grow up to hold a job.

A budget and overall financial literacy are part of an adequate education and can be taught in the home. Is this occurring? If you are a homeschooling parent and would like to incorporate Financial Literacy Classes in your curriculum, see the link at the top of this Hub for free lesson plans.

Some homeschoolers undoubtedly grow up to find and maintain well-paying work. Others, after completing studies, cannot hold down a salaried or hourly position with set hours and responsibilities, because they have lived by an irregular schedule. Some of these young adults cannot work at all, but others find success in the artistic fields or in other types of self-employment. Regardless of job or career type, all homeschoolers can benefit from financial literacy training.


A Simple Monthly Budget for a First Job

Expense Categories
Expense Dollars 
Income Dollars
$ ---
$ ---
UTILITIES: Gas, Water, Electric, Trash 
..Telephone or Cell Phone (not both)
..Cable TV?
..Internet Access?
--Better Deal: Bundled Phone/Cable/Internet
FOOD: 1) Groceries and 2) Lunches packed for work
Transportation: Busfare or Auto payment, maintainence, and Insurance
Health & Life Insurance
Physician and Medications
Clothing and Laundry
Subtract from Income = $
Vacation Fund
Other (define)
TOTAL EXPENSES (add subtotals)
Subtract from Remaining Income = $

(c) Patty Inglish, MS January 1, 2011. All rights reserved.

Note: If you arrive at the first SUBTOTAL, subtract it from the INCOME and have $0 or a negative number, you have too many expenses already. You cannot allot any dollars for the OPTIONAL expenses and will need to reduce some of the NECESSITIES expenses -- For example, find a cheaper Phone/Cable/Internet bundle, find ways of saving on utilities, etc.

Comments and Considerations

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    • Patty Inglish, MS profile imageAUTHOR

      Patty Inglish MS 

      10 years ago from USA and Asgardia, the First Space Nation

      I am surprised with the number of people that have not added all their monthly expenses and then added all their income for a month, finally comparing the two numbers. This is a good lesson in itself.

      Thanks for allthe commetns that I appreciate so much!

      Thanks for the kind words, mwatkins!- that's special, coming from bookkeeping.

    • mwatkins profile image


      10 years ago from Portland, Oregon & Vancouver BC

      I love your stuff, Patty. Your tips and knowledge and passed on lessons are so helpful. I see it too in my business (bookkeeping), and never fail to feel amazed by some people and their grasp of money matters. Great job - Excellent spreadsheet for a budget! I wish it was taught more and to a larger percent of the population - ;-) Our money system is one that's set up for people to fail - Credit cards are my primary pet peeve because they makes slaves out of people and people still use them to buy - TOYS they can't afford to pay for with cash. I can't get started on that, irresponsibility and the entitlement mentality boils my blood.

    • quemacoco profile image


      10 years ago

      thanks for the advice. great insight.

    • lea86 profile image


      10 years ago

      This is a great hub for increasing the knowledge of personal finance, thanks!

    • Back 2 Basics profile image

      Back 2 Basics 

      10 years ago from Maine

      Excellent hub! Financial Literacy should be taught in the same way that schools teach math. Gradually increasing the knowledge. I left high school knowing how to figure complex trig and calculus problems, but no clue about 401k's, IRA's, balancing a checkbook, or how to use credit cards.

    • Patty Inglish, MS profile imageAUTHOR

      Patty Inglish MS 

      10 years ago from USA and Asgardia, the First Space Nation

      Thanks for all the great commentrs!

    • Hello, hello, profile image

      Hello, hello, 

      10 years ago from London, UK

      An absolutely, awesome written hub and so useful to people in this terrible, financial situation.

    • Simone Smith profile image

      Simone Haruko Smith 

      10 years ago from San Francisco

      Wow, this is a GREAT Hub. I love the table - it really adds utility and functionality. Brava!

    • Patty Inglish, MS profile imageAUTHOR

      Patty Inglish MS 

      10 years ago from USA and Asgardia, the First Space Nation

      Thanks to all for more great comments and spending your time reading here!

      @Earth Angel - Hoping those that need it can read this Hub and save themselves from homelessness because of financial illiteracy. I admire your volunteering - I burnt myself out with it and need to return.

      I look forward to all the Hubs coming up on investments and such. This is a wonderful topic. Happy New Year!

    • Earth Angel profile image

      Earth Angel 

      10 years ago

      GREAT Award-Worthy Hub Patty!

      Happy New Year Pretty Lady! Thank you for this GREAT Hub! Yours just always take the cake!

      Just recently I heard someone say, "Live below your means but within your needs!" I like that!

      Although having done so much volunteer work over the Holdiays with the local homeless shelter, that last part is a dream for many!

      All thumbs up from me!

      Happy New Year! May all our Hubs follow in your outstanding example!

      Blessings always, EarthAngel!

    • profile image

      david stillwagon 

      10 years ago

      I am glad to see that schools are now teaching about financial literacy. It should have been done a long time ago.

      great hub

    • kirutaye profile image


      10 years ago from London, UK

      Informative hub. I like the budget table.

    • travel_man1971 profile image

      Ireno Alcala 

      10 years ago from Bicol, Philippines

      Excellent hub, Patty. Learned a lot from it, too.

    • Patty Inglish, MS profile imageAUTHOR

      Patty Inglish MS 

      10 years ago from USA and Asgardia, the First Space Nation

      @Don - Every word of it is golden -- a great bit of writing from you to add to this Hub and I thank you for it. Congratulations on your 24-year-old's turn of mind!

      @soni2006 - Thanks very much!

      @nanospeck - Thanks so much for the vote up!

    • Don Simkovich profile image

      Don Simkovich 

      10 years ago from Pasadena, CA

      Excellent Hub. You've added an important dimension to the topic of personal finance by adding the public assistance component and even homeschooling. This topic is important to me. My kids came in to my family at different ages and their temperments and emotional needs have made an impact on their views of education and work. We homeschooled our two boys for their elementary and junior high education. We had chances to teach them personal finance and they even did their homework while at my wife's medical clinic and they had group classes with other homeschoolers. Our one son is on a scholarship to a private university. Another one of our children has worked hard to avoid work. She even tried getting on welfare last year and didn't get the amount she wanted. But she's really come around and at 24 wants to finish her high school equivalency and really lay the foundation for a career.

      Grasping personal finance is a combination of parents teaching their children while the kids themselves will make good and bad decisions -- hopefully they learn from both. Sorry for the long comment but this topic is important to me.

    • soni2006 profile image

      Rajinder Soni 

      10 years ago from New Delhi, India

      Definitely they will help Patty. Your first hub is outstanding.

    • nanospeck profile image

      Akhil Anil 

      10 years ago

      Hey superb hub! Rich in resource! voted Up!

    • Patty Inglish, MS profile imageAUTHOR

      Patty Inglish MS 

      10 years ago from USA and Asgardia, the First Space Nation

      Thanks soni 2006! I hope my personal experiences can help 1,000s of people this January!

    • soni2006 profile image

      Rajinder Soni 

      10 years ago from New Delhi, India

      Excellent hub Patty. You are an awesome hubber. I salute.


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