Financial Literacy

Financial literacy is one of the few skills necessary for life success. Though money cannot buy happiness, it provides safety, freedom, and the means for necessities. Understanding how to manage money is the foundation of financial literacy, so people can achieve financial freedom within their means. Some tools of financial literacy necessary in life are saving, investing, smart spending, and budgeting. With these tools, it allows people to budget to stay within their means, stay prepared for life changes, have reserves for any possible emergencies, and save for retirement or future date. Other benefits of financial literacy tools are increasing earnings through investments, stocks, bonds, savings accounts, or interest-earning checking accounts.

Though a need, many people are unskilled in money management. In fact, two-thirds of Americans are unable to pass a basic financial literacy test and only one-third of the world is financially literate (Kruse, 2019). This is a huge issue as many are ill-equipped in making smart money decisions that can yield success in the present and future. Many initiatives are working to decrease these statistics by teaching young people about the skills and importance of money management. An example is the Aspen Entrepreneurial Institute, which teaches financial literacy in a curriculum ranging from grades Kindergarten to 8^th grade. The program’s vision is to instill the skills necessary for success, not through memorization or tests, by through real-world application to relate them to the students and capture their interest. By the end of the program, 8^th graders have an understanding of the stock market, planning, taxes, revenues, net profits, credit, interest. In addition, the students leave the program with their business plan or a business already started (Kruse, 2019). While this is a stellar example of trying to decrease the statistics, the problem remains that many states do not have financial literacy curriculums or requirements for it, such as mandating it as a class in order to graduate. As a result, though AEI is a great initiative in teaching future adults these life skills, its limited reach makes it a long road from helping equip a whole generation.

Though the learning process of financial literacy can be overwhelming with information, its reward outweighs the alternatives. Poor financial habits can result in damaged credit, more debts than assets, elimination of savings, repossession, foreclosure, or insolvency, which are difficult and timely to recover from. While some debt can be necessities, such as mortgages or auto loans, others are avoidable with good financial literacy skills, such as high credit card debt. The average American has $52,940 in debt, including mortgages and student loans as the top stakes in that number (Knueven, 2021). Budgeting, a skill within financial literacy, allows people to segment their money to take care of their expenses and pay down their debts without generating additional debt unless unavoidable. Saving, also a skill within financial literacy, is helpful with allowing people to have a reserve for emergencies or for a large purchase rather than creating more debt. Without these skills and all that encompasses financial literacy, a person’s financial success is greatly hindered and affects their life trajectory.

References

Knueven, L. (2021, May 25). The average American debt by type, age, and State. Business Insider. Retrieved October 9, 2021, from https://www.businessinsider.com/personal-finance/average-american-debt.

Kruse, N. (2019). Trend Lines: Teaching financial literacy. NAIS. Retrieved October 9, 2021, from https://www.nais.org/magazine/independent-school/summer-2019/trend-lines-teaching-financial-literacy/.