According to research by the American Economic Association, most people around the world have no idea how to manage their money. Financial literacy is essential for knowing how to manage your day-to-day money effectively, avoid major debt problems, and retire comfortably.
Unfortunately, over half of Americans do not have enough money to retire comfortably, and 8 in 10 Americans are in major credit card debt. Thankfully, this lack of financial literacy has encouraged many schools to add financial literacy programs into their curriculum. However, this only goes for the schools that have the proper funding to do so, which displays the root cause of this issue.
The question is, why is financial literacy so important to understand, and how do you know what level of financial awareness you have?
We’ve written this article to teach you everything you need to know about the importance of financial literacy, so you have a better awareness of your current level of understanding, plus some tips on how to better manage your finances. Keep reading to learn more.
What is Financial Literacy?
Financial literacy refers to the level of understanding, skills, and knowledge required for a person to make educated decisions about their financial resources. This includes investing, retirement saving, budgeting, vacation planning, income management, and more.
The greater level of financial literacy someone has, the better off they are in saving for their future, and the more money they will have during their lifetime.
On the contrary, those with a low level of financial literacy seem to always struggle with their money, require government assistance, and live month to month, barely getting by.
Financial Literacy Leads to a Better Retirement
Financial literacy and retirement planning go hand in hand. Both are essential for a safe future and require a level of understanding to make it happen.
People who have a higher level of financial literacy are more likely to save for a better retirement. They accumulate adequate savings during their working life to save for the lifestyle they desire once they reach the age of retirement.
Most people know about the importance of saving for their retirement, yet very little people take the action to save for it. This forces many people of the retirement age to continue working to make ends meet and survive.
The problem stems from a lack of effective money management. If someone is living the paycheck-to-paycheck life, how can they expect to put more money aside for something in the future? The lack of education around retirement savings causes many Americans to not take future financial planning seriously.
Parental guidance plays a major role in retirement planning. Most parents are aware of the importance of teaching their children about retirement planning, yet not many parents have the financial literacy to walk their children through the process properly.
Better Money Mindset
People who have a higher level of financial literacy tend to look at money in a different way than those who are financially illiterate. These people see money as an opportunity to grow and have a clearer view of what money can bring into their lives.
This is otherwise known as a “growth mindset” or an “abundance mindset,” which means that they are open to learning and growing as money comes into their lives. These people end up having a more enjoyable life, full of vacations, purchasing desirable items, and knowing how to make money work for them.
Those who have poor financial literacy look at money with a scarcity mindset. Money tends to own them and holds them on a tight leash, instead of the other way around. People with a scarcity mindset have a hard time putting any money away, which leads to a less enjoyable life and more stress.
Many studies have discovered the major link between debt and suicide, those who died from suicide were eight times more likely to have been experiencing debt.
People with a higher financial literacy score understand the importance of investing their money. They know that investing leads to long term future financial security, and provides a safety net of extra income.
- Exchange-traded funds
- Property investments
- Business investing
- Precious object investing
- Real Estate investment trusts
- Hedge funds
- Mutal funds
- Savings accounts
- Car title loans
There are numerous ways to get started in the investing world, and it does not take as much money as you may think. Many financial advisors offer free consultations, which could help you gain a better perspective on how investing can work for you.
We Need More “Money Education”
The best treatment for financial illiteracy is providing more educational opportunities on the overall topic of finances. This should start from youth in order to create a growth and abundance mindset for more Americans. School systems that put more focus on teaching financial literacy will help their students learn all about money before they start making it.
This includes teaching youth about credit card debts, budgeting, saving, retirement planning, the importance of investing, and more.
The second treatment for financial illiteracy begins with financial advisors. These professionals need to put more focus on their role as financial educators to help educate the public and their clients about making better financial decisions.
According to a study by the Investor Education Foundation, over 46% of Americans lack a rainy day fund. With more emphasis on the school systems about financial wellness, we can collectively improve our nation’s overall financial score.
Learn More About Financial Literacy
Now that you know the importance of financial literacy, you are probably curious about looking into your own current finances.
At Georgia Title Loans, we offer car title loans as a smart, short-term solution that can help you keep up with and even get ahead on your finances. In some cases, you can use that cash to make more cash, and help to save for your family’s future.
But title loans aren’t for everyone. Feel free to contact us to learn more, and if a title loan seems like a smart decision, we’ll get started on your loan application today!