Why financial education is important, from saving to paying off debt

Walrus Images | digital vision | fake images

To achieve financial success, knowledge is key.

Yet many Americans lack financial education. That can affect everything from the amount of money saved to the debt owed.

The situation is serious for more than one. More than half of Americans can’t cover a $1,000 emergency expense with savings, a January Bankrate survey found. Meanwhile, about 20% of employees run out of money before their next paycheck, according to Salary Finance. That’s an increase from 15% last year.

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

More from Invest in You:
Florida requires personal finance education in high school
How to raise financially healthy children and mistakes to avoid
College Money 101: From Student Loans to Budgeting

“Financial education can help Americans feel confident about the decisions they make on a daily basis,” said NFL linebacker Brandon Copeland, who teaches a personal finance class 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 that game,” he added. “The same applies to understanding money and how it works.”

building good habits

These days, Americans are still dealing with the fallout from the Covid-19 pandemic and resulting inflation, which is costing the average American household an additional $296 per month, according to an analysis by Moody’s Analytics.

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

“There are a lot of things that can affect your income or the world around us, but making a decision in the moment isn’t really going to be that helpful,” he said.

“Having developed the good habits you need early in life…will help you get through all those changes.”

Those behaviors include understanding where you stand financially, budgeting, and saving for emergencies.

save and invest

Married couple embracing on sofa

Momo Productions | digital vision | fake images

Knowledge is also power when it comes to investing. While meme stock and cryptocurrency trading has become popular, it’s important to remember that saving for the long term 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 hairdresser about, after he confided in her about his anxiety about money and his concern about providing financial stability for his family. The stylist, in his 40s, invested in fintech stocks and cryptocurrencies through a popular trading app, but had no retirement savings or life insurance.

“If my stylist knew the basics about Roth [individual retirement accounts]for example, starting many years ago, I would be way ahead,” Curtis said.

“Without basic financial education about the power of compound interest, what types of savings and retirement accounts are available, and how important it is to start saving early, the financial future for many Americans is bleak.”

helping relationships

Couples may have different thoughts about money. When there is mismanagement of finances or a difference of opinion about how to use money, that can lead to conflict.

“Many couples struggle to talk about money and if there is a lack of financial education in the couple, there could be a lot of financial missteps,” said Dr. George James, licensed marriage and family therapist, chief innovation officer and staff therapist. Senior of the Non-Profit Relations Council.

“Having a greater understanding of financial education can help relationships build a future and stay on the same page,” he added. “It can also reduce the amount of conflict.”

personal finance in schools

Image source | digital vision | fake images

Proponents believe that it is important to start learning good financial habits at a young age and that there is no better place than school.

Twenty-five states require high school students to take personal finance courses, either in a stand-alone class or integrated into another course, according to the Council on Economic Education. Last week, Florida became the latest to sign a bill requiring a course to graduate.

Additionally, there are 46 personal finance bills currently pending in 21 states, according to the Next Gen Personal Finance bill tracker.

The impact of that education can be seen in several studies, advocates argue. It has been shown to reduce the likelihood of using payday loans among young adults and is positively correlated with asset accumulation at age 25.

Add Comment