8 Tips to Improve Financial Literacy
Posted
on Tuesday, April 2, 2024
in
Financial Education
When you think of financial literacy, you might imagine parents teaching young kids to put change away in their piggy bank, or you may imagine high school students in a classroom yawning while learning about budgeting. The truth is, financial literacy isn’t just for young kids – it’s for people of all ages to help them become financially smart and independent individuals.
Studies show that financial literacy in the United States is severely lacking. 1 in 5 students lack basic financial literacy skills, and 54% of student loan holders don’t understand their future loan payments when taking out their loans. Among working adults, 47% of men demonstrate basic financial literacy skills, while only 29% of women show basic financial literacy skills.
Like any subject, financial literacy can’t be picked up overnight – it can take years of hard work and dedication to your finances to see the lessons you’ve learned come to fruition. Here are a few tips to help improve your financial literacy, and help you turn your financial situation around.
- Create a budget. One of the first steps in taking control of your finances is creating a budget. Analyze your spending from the last several months and consider what expenses you have coming up during the next month. Budget every dollar – your rent or mortgage, regular bills, groceries, eating out, and everything in between.
- Track your spending. After you’ve created your budget, track your spending throughout the month. At the end of the month, reflect on your spending. Did you over-budget for one area, or under-budget for another? Adjust these budgeted amounts for the next month’s budget and continue to find ways to limit overspending. The first months of budgeting can be rocky, but the more you budget and track your spending, the easier it becomes.
- Save for emergencies. After you’ve limited your overspending, it’s a good time to begin saving for emergencies. Experts recommend that your emergency fund should comprise 6 months of your household expenses. So if your household spends $2,000 on mandatory expenses, you need a $12,000 minimum emergency fund. That number can seem overwhelming, but track it a few thousand (or hundred) dollars at a time, and feel excitement as you hit each milestone.
- Save for the future. On top of your emergency fund, you may also want to save for large future expenses. Are you thinking of trading in your vehicle soon, or upgrading from your starter home to your forever home? Rather than leave these big expenses to be paid for last-minute, plan for them now so they don’t cause unnecessary stress later.
- Plan for retirement. For many young people just starting to become financially independent, retirement can feel like a distant dream, but saving for retirement now can make all the difference decades later. If your employer offers a 401(k) or similar retirement plan, consider investing a percentage of your paycheck towards the retirement plan. If you want to save an additional amount towards your retirement, consider opening an IRA to invest additional retirement savings.
- Live within your means. One of the best things you can do for yourself financially is live within your means. We’re all drawn to expensive, shiny things, but they don’t always realistically fall within our budgets. Rather than buying fancy new things with a credit card or personal loan, make more affordable purchases that can fit within your budget. Oftentimes doing the hard financial work now can lead to big rewards later.
- Only take on smart debt. “Smart debt” is debt that you can reasonably pay off without facing astronomical interest rates or late fees. Opening a credit card is a smart move to build credit, but only if you use it responsibly. Remember that everything you pay for with a credit card must be paid for in full at the end of the month to avoid paying interest or late fees.
- Ask for help from a financial advisor. It can be overwhelming to try to analyze your financial picture by yourself. Talking with a financial advisor can introduce another person’s perspective and allow you to see your finances in a new light. Reach out to a trusted financial advisor for assistance making changes to your financial situation.
Financial literacy is just as important as other basic skills, like reading or doing multiplication. This Financial Literacy Month, take a step in the right direction by seeking out financial education resources and making the next step toward being a financial smart and independent individual.
For more information about United Bank & Trust, visit our website, stop in, or call us at (641) 753-5900.