April is financial literacy month. Becoming financially literate is your first step to GET READY!. Financial literacy is about understanding your financial choices, the terminology and how the various parts of your financial life work. It’s about becoming educated and making smart money choices.
Financial literacy is defined by the Government Accounting Office (GAO) as: The ability to make informed judgments and to take effective actions regarding the current and future use and management of money. It includes the ability to understand financial choices, plan for the future, spend wisely, and manage the challenges associated with life events such as a job loss, saving for retirement, or paying for a child’s education.
The perils of not being financially educated range from being overcharged to being a victim of financial fraud. Knowledge, truly is power. The more that you know about your finances, the better your decisions will be. You’ll be able to increase your savings and minimize your expenses.
It is our natural inclination to avoid issues that we are not comfortable with. And this is especially true in the financial world. The financial world is full of complexities including unending jargon. When you visit another country where English is not the primary language, are you able to communicate effectively? Or are you able to communicate better when you find someone who speaks English or can translate for you. Finances are the same thing, once you understand the language or have a reliable translator (such as a financial advisor or insurance agent), you begin to understand what your choices are, and feel more comfortable.
Most of us learn little to nothing about our financial lives in the educational system. Yet, each of us has to run our financial life, which is in essence a micro-business. Our financial life has income (hopefully) and expenses (unfortunately). Just like in a business, we have to make choices about how to run our business and be able to balance our books by staying within our budget. We are faced with setting financial goals and priorities. Do we save money for retirement or do we take that dream vacation?
Financial literacy is not a choice, it’s a must have skill. And keep in mind that most people across the globe have low levels of financial knowledge as an OECD financial literacy study finds many adults struggle with money matters.
A basic rule should be that if you don’t understand something, then it’s not a good idea. When dealing with financial products and services, break them down into parts that you can understand. The GET READY! Principles provide a starting point (go here to learn more about each principle). Read through them and see how you can put them into effect:
- Your advisor should act in your best interest.
- You should receive customized service appropriate to your needs and goals.
- You have free choice.
- You should receive an answer to any question.
- You have the right to pay a fair price (or premium).
- You should always be informed.
- You should expect to be treated fairly and respectfully.
- You have the right to full disclosure and updates.
- You should receive quality service and fair resolutions (including claims handling).
- You should be able to change or cancel a financial service and to be notified of any changes.
Technology while helpful, is also not the complete solution. Fintech is great, however, it can often overlook basic educational principles. The challenge is how can someone benefit from a “smarter” system if they don’t understand what that system is.
Becoming financially literate is something that we all can do. Like any skill, it will take time and effort. You’ll succeed and you’ll fail. However, the reward is well worth it.
More financial resources:
- tonysteuer.com - find tools and resources to deepen your financial literacy and be financially prepared.
- Consumer Financial Protection Bureau: Learn about auto loans, bank accounts and services, credit cards, credit reports and scores, debt collection, fraud and scams, mortgages, payday loans and student loans.
- FINRA.org (Financial Industry Regulatory Authority). Provides investor education to help you learn about investments.
- NAIC.org (National Association of Insurance Commissioners). You can find consumer guides to different types of insurance and useful tools.
- consumeraffairs.com: They provide comprehensive buyers guides and how-to articles along with consumer reviews. Please note that they do charge companies to be accredited.
- Financial Blogs: Check out the Rockstar Personal Finance Blog directory. I subscribe to The Simple Dollar and The Balance. There are many good financial blogs out there.
GET READY! Be financially prepared!
- Learn how to GET READY with risk protection for your financial life
- Stay READY by maintaining your financial first aid kit
- Keep up with the latest news on financial preparedness