Financial Literacy and A Look Inside eHome’s Money Management Course!
What is financial literacy, anyway? We hear the term thrown around often, but do you know what it actually entails?
Is financial literacy strictly just about how to manage your finances well?
In case that term is new to you, financial literacy goes far beyond just knowing your monthly budget.
In fact, it may go even deeper than what you would expect, which is why we’re so passionate about it. It’s a much more holistic topic than most people realize and once financial literacy has been achieved, the ripple effects of that knowledge can be very powerful in one’s life.
The Financial Industry Regulatory Authority (FINRA) conducts it’s National Financial Capability Study every few years. As part of this study is a five-question test that measures knowledge about inflation, diversification, compounding, interest and bond prices. The FINRA found that out of five questions, only 34% of participants answered more than four questions correctly.
With the help of this study’s findings, we see that the elementary level of economic and financial principles that are at the root of these issues/topics are widespread and that a majority of Americans lack a mature understanding of these issues. This lack of financial literacy contributes American's willingness to take on massive debt, live above their means, survive paycheck to paycheck, and ultimately never pull themselves above water. (Investopedia)
This isn’t something we want to continue.
If 2020 did anything, it made us increasingly more reliant and comfortable with online shopping. In 2019 alone, credit cards accounted for 23% of payments which was up 2% from 2017.
This is the perfect storm for accumulating more debt. The average 30-39 year old is in around $23,000 of debt (Daveramsey.com). To make matters worse, our younger generation between the ages of 18-29, who is entering the workforce for the first time and expected to take on a low salary for entry level positions, are on average already in $11,000 of debt.
This is an example of why financial literacy is a necessity among the general population.
So, What is Financial Literacy?
Let’s do some math. Finance Management Knowledge + Credit Management Knowledge + Debt Management Knowledge = Financial Literacy. These three topics are essential to making financially responsible choices in our everyday lives.
This knowledge will affect how you purchase groceries, what quality of home you purchase, your ability to afford college tuition, braces, weddings and other common life expenses.
Financial literacy can lead one to save for education to avoid student debt, to prepare for retirement without stress and worry, to use debt responsibly to improve credit scores, and even to run a successful business.
On the other side of the coin (pun intended), being financially illiterate can lead to an unmanageable amount of debt because of poor spending habits or insufficient preparation. These choices often lead to bad credit scores, bankruptcy, foreclosures of homes, and desperate behaviors.
Why is it becoming increasingly important?
Previous generations were able to work a working class job for 40 years and then have the choice to rely on company pensions and government programs that would offer them a relatively comfortable retirement. Oftentimes, these generations of workers did not need to contribute their own money to these funds and did not have to make many decisions regarding their pension/retirement funds.
Today, pensions are slowly becoming a thing of the past, unless you work for a state or federal government agency or organization. Instead, professionals are trending towards participating in making contributions to their 401(k) or 403(b) plans. These individuals typically choose how much money they contribute to these funds each month, with some seeing a portion of those dollars matched by their employers.
For years, the workforce could depend on Social Security as a safety net when they approached retirement, but that is no longer the case. The Social Security Board of Trustees says that by 2034, the Social Security trust fund will be closed to depletion, emptying the longstanding financial security that this program has provided to our workforce.
This puts a heavy weight on workers and small business owners without retirement plans, to plan further ahead than they previously anticipated.
With regard to savings and investment options, consumers can easily fatigue when exploring the volume of investment opportunities available to them. Which type of savings account is best for generating compound interest? Which investment will have the highest rate of return? The choices are endless and the decision can be overwhelming and confusing.
Many of these new products are more complex than ever before, making it essential that consumers are properly educated on the options available to them. If a consumer isn't properly educated on these complex products, one wrong decision could severely impact their financial health, which would impact their chances of qualifying for a mortgage, hamper their ability to save money, and risk the strength of their credit scores without their knowledge.
Education is the key!
How do I become financially literate?
Luckily, there are more and more organizations who want to see Americans embrace financial literacy with a healthy mindset around money. In depth courses like eHome America's Money Management Course give consumers a chance to improve their financial health at a critical time.
Digging their way out of debt, handling their money more responsibly and consciously, and figuring out how to build up a savings account will provide a light at the end of the tunnel.
Our Money Management course has simple and deconstructed steps that will equip and prepare consumers for a financially literate future.
The Money Management course covers:
- Creating a financial plan and learning how to budget and save
- Paying off debt and staying out of debt for good
- Understanding and maintain good credit
- Planning for unexpected expenses
Our hope is for a brighter future for Americans, without feeling the need to bury themselves in debt just to survive, as well as knowing all of their options as to how to thrive in our modern economy!