When we think about improving our finances, we’re usually thinking of ways to get rich quick. It’s all about making the most money in the shortest amount of time.
However, these kinds of tips and tricks don’t work for most people. Usually, you need to already have a decent amount of money saved, and you have to be willing to invest it and risk losing it.
Sounds familiar?
The truth is that, like many things, a healthy financial future requires time, patience, and some education.
Now, we know that might not be what you want to hear, but in this article we explain why financial literacy is the most important step on your road to financial success and how it actually can be the fastest way to prosperity by teaching you the best way to manage your money without having to risk it in get-rich-quick schemes and investments.
What is financial literacy?
Financial literacy is simply having the financial knowledge and skills to better understand your own financial situation and how that can be impacted (both positively and negatively) by the financial choices you make.
For example, Maria came to the US to study, and after graduation, she was able to find a job and stay. She earns a good salary and has recently been able to save enough money that she is considering buying a house. However, Maria is still in considerable debt from student loans and a credit card she got when money was tight.
Even though Maria has started to save money, is buying a house the best option for her right now?
Nobody knows Maria’s situation better than Maria, and if she didn’t know any better, she might be tempted to put a down payment on a house.
However, with the right knowledge, Maria may also stop to consider how her current loans and debt may affect her chances of getting a mortgage and her ability to make payments on time. Therefore, Maria can make a better decision on what’s right for her.
That’s the best part about being financially literate! Anyone in any financial situation can learn the skills to make better decisions based on their own needs.
Why it’s so important in 2024
Among the several unfortunate side-effects of the Covid-19 pandemic was the financial impact it had on mainly low- and middle-income people and especially groups already considered financially vulnerable, such as migrants living in the US.
Many of these people found themselves unemployed and reliant on government assistance like stimulus checks that were slow to arrive, if they were even eligible to receive them at all. Migrant families with mixed immigration status, for example, were disqualified from receiving stimulus payments, even though they were amongst the groups that needed them most.
In January 2020, before the US was feeling the full effects of the pandemic, 41% of Americans reported they would be unable to cover a $1,000 emergency with the savings they had. Six months later, as the virus devastated the US, nearly 25% of Americans had no emergency savings at all and 16% had taken on more debt since the start of the pandemic. On top of that, nearly one-third were also reporting a lower income than six months prior.
Although being more financially literate would not have eliminated the financial burden caused by the coronavirus entirely, it may have helped many individuals to be better prepared. That’s why we believe you should make 2024 the year you make becoming financially literate your goal!
The benefits of being financially literate
There are a wealth of benefits for taking the time to become financially literate.
The biggest benefit is that financially literate people are better prepared for the future. If 2020 taught us anything, it’s that we never know what can happen and even wealthy people can suddenly find themselves in a financial crisis.
However, if you’re prepared, the likelihood that you and your family can withstand a temporary financial roadblock is much greater.
Financially literary people are also less vulnerable to fraud since they have a good understanding of their finances and take the time to make informed financial decisions.
Financial literacy is also something you can share with your family so that everyone is better prepared for the future. Whether you want to pay off debt, save for retirement, or start a business, financial literacy skills can help you navigate almost any situation.
Financial literacy 101
The word “finances” can be really intimidating. Most people start to think of Wall Street, interest rates, and other abstract money concepts.
But in reality, your “finances” can be as simple as the money you earn and the bills you pay. It all depends on your situation and your financial goals.
However, there are a few basic financial literacy keywords and concepts that are good to get familiar with.
Personal finance – a term that’s all about your own financial situation and goals and how they are affected by your income, expenses, family size, living situation, and more; plus, how you develop strategies to better budget, invest, and save your money.
Budgeting – how you plan to spend your money. In other words, how much of your income you put aside for savings, expenses, and bills. It’s really as easy as that!
Credit – essentially borrowing money from a lender with the expectation you will pay it back in installments, usually with interest fees added on.
Debt – the money you owe someone else.
Investing – putting money into something with the hope that it will generate more income in the future, including stocks, real estate, and retirement funds.
If you understand at least the basics of these terms, you’re already ahead of the game.
Get started on your financial literacy journey
Hopefully, by now you have an idea of what financial literacy is and why it’s so important.
Now it’s time to create a budget and start learning the skills it takes to build a better financial future. Unfortunately, they rarely teach this kind of thing in school. It takes practice and trying it on your own to get good at it. But the end reward is worth it.
If you can create a plan and stick to it, you’re well on your way to not only financial success but also financial stability, meaning no more worrying about debt collectors and overdue credit card payments.
It may not be a get-rich-quick scheme, but when you begin to understand your finances better and make better financial decisions, you’ll see the money start to flow in and actually stay in your account as you pay down your debts, avoid unnecessary overspending, and start to build a savings account.
And don’t forget, if you need help on the way, MAJORITY is here for you!
We offer an FDIC-insured spend account to keep your money safe with no overdraft, minimum balance, or foreign transaction fees. Plus, your account comes with a Visa® Debit card that gives you exclusive access to discounts in your own community. And these are just some of the ways we help you save. Learn more and get started today!
