10- Stop Leaking Cash by Becoming Financially Literate
Updated: Jan 15, 2021
Do you want to be better off financially and stop leaking your valuable cash? Improving your financial literacy just might do the trick. A lack of knowledge and understanding of your financial resources and how to manage them can be both financially and psychologically costly.
Despite a booming economy, record corporate profits, a healthy stock market, fifty-year low level of unemployment and improving wages, most people are struggling financially. They are often buried in debt and one missed paycheck away from complete financial failure. The Center for Financial Services Innovation reported on November 1, 2018, in its inaugural US Financial Health Pulse (cfsinnovation.org), that only 28 percent of Americans can be considered financially healthy. It struck home to me, as it summarizes what I have seen in my recent travels, reading and experience in the financial services industry.
In an interview published in USA Today, Jennifer Tescher, CEO of the Center for Financial Services Innovation, said, “We felt like we needed to create a definitive study that helped to demonstrate that while the larger economic headlines around a roaring stock market, and low unemployment, and great consumer spending are out there, that’s not actually telling an accurate story.”
The organization surveyed more than five thousand Americans. Here are some of the report’s key findings:
Nearly half said their spending had equaled or exceeded their income in the last twelve months.
Forty-four percent of those surveyed relied on credit cards to make ends meet.
Only 45 percent have enough to cover three months of living expenses (even though the majority of Americans say they save whenever possible).
Forty-two percent have no retirement savings.
Thirty percent have more debt than is manageable.
The report aims to give a fuller picture of financial health than typical studies. “We tested dozens and dozens of indicators,” Tescher said. Looking at something like annual income, for example, doesn’t necessarily indicate whether someone can cover his or her expenses. “If you’re not really understanding how people are managing their money in a day-to-day kind of way, you’re missing the whole picture,” she said.
I have seen the same financial reality that most Americans experience. My reading and research have revealed the following about today’s average American family’s financial situation:
A record number of individuals over age sixty-five are filing for bankruptcy protection.
About 80 percent of families live paycheck to paycheck.
Over 60 percent of families would be in a financial panic if they needed to come up with $400 to cover an unexpected bill such as a medical cost, a major car repair, a house repair or the unexpected costs of an accident.
Consumer debt of all types is at historically high levels, with student loan debt increasing the fastest.
The average family has less than $100,000 saved for their retirement, which will likely last 20 to 30 years.
The average family has less than one month of their annual cash expenses in savings.
Given today’s economic realities, the pace of technological change and projections of what our economy will look like over the next few decades, we are rapidly moving to a point where more and more families are approaching the financial abyss. It will not take much of a push to put them over the edge.
Families are in a much more precarious financial situation than the media is reporting. People are having great difficulty making their money stretch to meet all of their lifetime needs. Why are families struggling so much in favorable times? I believe the root cause is that we have not educated people about what to expect in their life’s financial journey and what financial decisions they will required to make. They simply do not know what to do or where to go to get the help they need.
I am not referring to the frequently mentioned 1 percent or how to become a millionaire overnight. It’s about attaining basic financial security for the majority of Americans, regardless of which identity group, race, religion or demographic cohort they identify with or belong. The need for better education is abundantly clear from the financial distress most people are facing today. It’s crucial we get back to financial and budgeting basics and reevaluate how we approach money to achieve our short- and long-term goals.
The Annual Cost of Financial Illiteracy
In a February 2019 article by Brian O’Connell on TheStreet.com, Americans are described as "lacking" financial literacy and that not having a grip on one's personal finances can lead to big problems . His article was based on a recent survey from the National Financial Educator Council (NFEC).
Out of 1,500 U.S. adults NFEC surveyed, respondents said that, on average, they lost $1,230 dollars in 2018 by not properly understanding basic household finance issues - that's about the monthly mortgage on a modest home or over two and one-half average car loan payments. Almost 20% reported not understanding their finances cost them $2,500, based on calculations provided by the NFEC. Altogether, a lack of financial literacy cost Americans a total of $295 billion in 2018.
What is Financial Literacy?
Financial literacy is defined as being educated about money and finance, with a special focus on an individual's personal finances. Being financially literate enables you to make smarter money management decisions that lead directly to a financially secure future, one that protects the assets built by you and your loved ones.
Categories that typically come into play with financial literacy are everyday financial issues like budgeting, spending, debt, taxes, retirement savings, college savings, mortgage management and tax and estate planning.
Digging deeper, financial literacy can also include more obscure themes, like investing, understanding how interest rates work, passive versus active income and overall financial planning.
The Need for Lifelong Financial Learning
Spending at least two hours per week improving your knowledge of personal finance can make an impressive impact. This includes viewing, reading or listening to financial-related news and information. While it may sound boring, these efforts are necessary to become financially educated, and will help you understand the economic environment we face, the new events impacting your money, the products and services available and the consumer trends moving the markets. I get my information from a variety of sources, including CNBC, Bloomberg and Fox Business Channel. In addition, below are my suggestions for other useful reference sources.
Websites to Improve Your Financial Literacy
These sites focus more on personal financial issues versus those that look at starting a business, entrepreneurial ideas and business management. There is a tremendous amount of free information available that can improve your financial journey each day. Find one or two you really like, and consistently visit them.
Publications Worth the Read
I read four financial publications on a regular basis — reviewing the daily, weekly or monthly issues of the publication. They provide great sources of information, practical ideas and suggested strategies for what can be done with money and how to address certain financial risks.The publications are:
The Wall Street Journal
Kiplinger’s Personal Finance
Podcasts Worth a Listen
I am an avid listener to podcasts and subscribe to about thirty on a regular basis. For those of you who haven’t joined the podcast trend, they are seven- to thirty-minute audio or radio programs that you can listen to when you want and as often as you’d like. You can listen to them on your phone, desktop or tablet while you drive, exercise or walk.
If you are new to podcasts, you can subscribe to them using Apple Podcast, Google Play, iTunes, Spotify, SoundCloud and the Stitcher applications, for example. These applications are free to access and use. I have chosen these podcasts based on my experience with the quality of topics discussed and ability to keep my interest.
My recommendations include:
Additional Resources to Consider in Your Education
There are a number of other financial resources available on an online basis to assist you with your journey including financial-planning software, financial calculators, detailed product information, retirement income and investment-planning applications.
I know you are busy living life and have a long list of things to do., but you can reduce the anxiety and stress that money matters can create by making an effort to improve your education. There are plenty of resources for you to tap. Go for it. By doing so, you can potentially save at least $1,230 per year for your efforts.