April is Financial Literacy Month, which makes it important to talk about, but it’s also relevant because there are several states across the U.S. now requiring financial education for high school students.
Young people must be taught financial responsibility and how to manage their own money, especially before entering adulthood and moving out on their own. It is a big step toward economic stability in our country, especially now as we fall deeper into debt.
Education is the first step toward getting your finances in order. If you do not know which credit cards work for you, how to build your credit score, or how to pay your bills, how can you be sure you are making the right decisions for your future?
What is Financial Literacy, and Why is it Important?
To break it down, financial literacy is knowing how to manage your money, and it centers around these five principles:
- Earn – Review your paychecks, note your deductions, and determine your net income.
- Spend – Plan how your money is spent with a personal budget.
- Save & invest – There’s no magic number of how much you should save. Just do it. It does help to have some sort of goal, though. Pro tip: if you get your check directly deposited into your bank account, you can select a specific percentage to deposit into your savings account too. Also, don’t forget to plan for retirement.
- Borrow – This is perhaps one of the more important concepts to understand because it is nearly impossible to be debt-free, at least for most people. At some point, you’ll need a new car or want to buy a house, or you have to have a medical procedure done. Most people either don’t have cash like that to put down or don’t want to. Websites like Credit Karma help you understand your credit score (for free without any impact), give you suggestions for credit cards, evaluate your home buying power, and more.
- Protect – Keep up with your bank accounts and credit card statements to check that there is no suspicious activity, and keep your financial documents and passwords secure.
According to a report done by LendingClub, as recently as January 2022, 67% of American consumers live paycheck-to-paycheck, which is not a surprise in today’s economic climate. Research from this report also shows that “among consumers who earn more than $100,000, 23% who live paycheck-to-paycheck and are struggling to pay their bills say they would not be able to pay a $400 emergency expense. This share of consumers that would not be able to pay such an emergency expense understandably increases among middle- and low-income consumers who live paycheck-to-paycheck and are struggling to pay their bills. Fifty-two percent of those who earn less than $50,000 and 38% of those earning $50,000 to $100,000 said they would not be able to pay a $400 expense”.
The pandemic, along with the 7.5% inflation increase, definitely have not made it easy. And many Americans are still making the same salary before the drastic inflation increase. Are you prepared to cover an unexpected expense?
If you are struggling to save, here are some tips:
- Plan your meals and always have a list for the grocery store to avoid impulse buying
- Pro tip: Only go down the aisles where you need something
- Regularly monitor your accounts and your budget - where are you spending your money?
- Credit cards help spread out your expenses but remember not to spend more than you can afford – think of it as borrowing money from a friend. You would want to pay them back as soon as possible, right?
- Buy generic – many stores have their own brand items that are made by the same manufacturer as the name brand items. Also, warehouse stores such as Costco or Sam’s always have great deals, and their non-brand products are often better or just as good
- Review any automatic subscriptions and memberships you aren’t using – they can add up!
- Cut down your energy costs
- Check your insurance rate – I know it can be a pain, but it could save you a lot of money in the long-run
- Evaluate your refinancing options on your car or house
- Have a garage sale or sell your items online – it’s time to clean out all that old furniture and other junk from the garage that, realistically, you know you’ll never use again
Of course, if you can afford a trusted financial advisor, that is always recommended as it is in their best interest to ensure you are prepared and assist you with all financial matters. Check out our blog if you need help setting some realistic financial goals this year.
If you participate in a Medcom HRA, HSA, or FSA plan, ask your HR rep about our Enrich Financial Health platform!