From childhood, we learn that money provides us with independence and helps us get what we want – whether it’s pockets stuffed with candy, a nice car or a first house. For many people, getting those things without going into debt is very hard. This is often because they lack “financial literacy” and money management skills.
Financial literacy describes a person’s knowledge, understanding and ability to manage their personal finances effectively. It includes budgeting, money management, paying off debt, growing their savings, investing and more.
Why does financial literacy matter?
Every day, you make choices about what to do with your money. If you don’t understand how to create a budget or manage finances, you are more likely to overspend, neglect your savings and fall into debt. High interest rates can cause this debt to snowball out of control and cause stress, instability and relationship problems.
Helping people learn how to manage their money wisely is a core part of the mission of the Financial Counseling Association of America (FCAA) and our non-profit members. We help people become more financially literate so they can be smart with their money, get out of debt and stay out of debt.
“FCAA member agencies are focused on improving financial literacy nationwide because the ability to effectively manage money is a fundamental skill that everyone needs,” said FCAA President Martin Lynch. “Our goal is to help people understand the basics of how to manage their money, helping them avoid financial problems while giving them the knowledge and confidence they need to handle any challenges that might come their way.”
While many states do require financial education courses for high school graduation, evidence shows that these lessons are not enough to become financially aware and responsible. Currently, credit card debt in the U.S. is at an all-time high of $1.21 trillion, and the average U.S. household debt is more than $105,000. More than a quarter of U.S. households live paycheck to paycheck.
Fortunately, through the efforts of the FCAA and our members, thousands of people are gaining the skills they need to live financially healthy lives.
Key aspects of financial literacy
Good financial education includes planning for both the expected and unexpected aspects of life. Some important financial literacy skills you should know include:
- Income and expenses – “It’s important for your own financial well-being that you have a solid basic understanding of your income and expenses,” said Lori Pollack, Executive Director of the FCAA. “You should know how much money your household brings home and what expenses you must pay.”
- How to use a bank account – Bank accounts provide a safe place to save money, deposit checks and pay bills. Different accounts work in different ways to help you achieve your goals.
- Budgeting – “All consumers should know how to create an accurate working budget and how to adjust that budget as their circumstances or goals change,” said Lynch. “They should also know how to budget for specific goals, like buying or maintaining a home, taking a vacation and the ultimate – retirement.”
- Understanding your credit report – “All consumers should understand how to read their own credit report and fix any mistakes they see, because there will be mistakes from time to time. They should also know the five elements of their credit score and how to avoid common mistakes and scams that will damage their score and waste their money,” said Lynch.
- How to deal with a financial challenge – “Whether it results from a loss of income, an increase in expenses due to inflation, or any one of a thousand personal scenarios that can impact your family’s finances, you must know how to handle a financial challenge,” said Lynch. “If you understand the fundamentals of personal finance, you’ll know how to evaluate your options in an emergency and make the best choices for yourself and your loved ones.”
- How to create and maintain an emergency fund – Life has a way of throwing unexpected storms in our path that can have serious financial consequences. An emergency fund allows you to better weather the storms.
Ways to become financially literate
Building a solid financial foundation isn’t as hard as you might think. The FCAA and our member agencies can help:
Tap into free educational resources online
“We know that people are incredibly busy these days, but if you can find just 10 to 15 minutes a week, you can significantly improve your financial literacy through an FCAA member’s website. Our members offer free budgeting tools and free articles on hundreds of topics,” said Lynch.
Explore the wide variety of free community education programs available to help you and your family learn the basics of personal finance through FCAA members or trustworthy organizations like Experian or TransUnion.
Connect with a non-profit credit counselor
“If you’re not financially literate in today’s world, you can get into debt very quickly. Our counselors help people regain control of their finances, alleviating the stress that comes from trying to manage your money without fully understanding how the system works,” said Lynch.
Non-profit credit counseling agencies that are members of the FCAA have an educational mission to advise people about money and debts. They are carefully vetted and certified to ensure consumers receive trustworthy, unbiased advice.
FCAA member agencies provide one-on-one counseling and education to individuals at every income level, helping them overcome their challenges and reach their financial goals. And, you don’t need to wait for an emergency to talk to an FCAA counselor or attend a seminar.
“If you don’t see the information you need on their websites, our counselors will answer specific questions you have about your finances for free,” Lynch shared.
Build a budget with a free budgeting calculator
“We can never say often enough how essential a budget is to a successful financially literate life,” shared Pollack. “If you don’t know where to start, the FCAA has a free budget calculator that will allow you to quickly see where your hard-earned money is going.”
Once you enter all the information, the budget calculator will give you feedback on how well you are doing with your debt repayments. After using FCAA’s budget calculator, you can connect with a non-profit credit counselor for more help or use the budget you created to track your spending and manage debt.
Increase your financial literacy with FCAA
Understanding your finances and how to make informed decisions about money is vitally important. With a solid understanding of financial concepts, you can build more financial stability and security.
Take advantage of free online resources or talk with a non-profit credit counselor to develop healthy financial skills like money management, budgeting, saving, investing and how to understand your credit report through free online resources.
By growing in your financial literacy, navigating financial decisions and reaching your financial goals will become easier, and you will be better prepared for any challenges that may come your way.