Why Financial Literacy is Important
Understanding finances can help you make better money management decisions, budget your money properly, adequately save for college, and be financially prepared for retirement. Financial literacy starts with a budget. Today, only one third of Americans have a budget that they actively use when making financial decisions, although 75% of Americans believe you should have a budget.
Here are a few reasons why financial literacy is so important today:
Longer Life Span – With an average lifespan of 78.7 years, we need to start saving as soon as possible for retirement. A new statistic shows that 22% of Americans have less than $5,000 saved for retirement. By educating young Americans about finances, it’s likely that more will start planning and saving for retirement sooner.
Reduced Pensions – Aside from the public sector, a majority of businesses offers employees the chance to participate in a 401(k) plan, where they’ll need to make decisions on how much of their money they wish to contribute, as well as where their investments should go.
Social Security Benefits Not Enough to Live On – The average Social Security benefit paid per month is $1,461; not nearly enough to live on comfortably. It’s vital that retirees have another source of income, whether from other retirement accounts, a 401(k) or IRA, or a savings account.
Aggressive Credit Card Companies – It’s easy to succumb to the temptation of using credit cards for everything, and equally easy to find yourself thousands of dollars in debt. By understanding the role that credit cards should play in your financial health, you are much less likely to overspend, and use the cards properly.
The Death of Cash – Only 18% of Americans state that they use cash to make most of their purchases. While debit cards and electronic payment apps have simplified the buying process, they have also left us with a curious detachment to our money, making it much easier to overspend without seeing the immediate consequences as we did with cash, when we could simply look in our wallet and see our cash dwindling. But by being proactive about our financial health, we can learn to pay closer attention to the consequences of our spending, no matter how a purchase is paid for.
While implementation of a financial literacy curriculum in schools is a positive trend towards financial literacy, we all need to take a long look at our financial health and see if we need a refresher course in financial literacy.