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Are You Financially Literate? Find Out Now

April 04, 2018

  • Most U.S. consumers have trouble answering questions about financial basics
  • Government sources are one place to go for education
  • Getting smart about money is a lifelong process

 

3 min read

Do you know how an interest rate affects your costs to borrow money? Or how compounding works to increase your personal wealth? Or whether it’s safer to invest in a single stock or a mutual fund?

If you don’t know the answers, you’re not alone. In fact, most Americans have problems answering basic financial questions.

Fortunately, Congress has designated April Financial Literacy Month, and over the coming weeks, Stash plans to present you with articles, quizzes, and other content that we hope will inform and you and help you test your financial knowledge.

But let’s start with the basics.

What does it mean to be financially literate?

In a nutshell, it means having the ability to take stock of your financial situation, and making the right decisions about money on a daily basis–so that you’re not wasting your cash, or getting yourself into debt, or taking unnecessary financial risks.

It also means budgeting, planning, and saving. And it means having goals for your financial future, which should include your retirement.

Unfortunately, too many people in the U.S. lack access to basics about financial education.

I never learned about financial literacy in school!

If you got through high school without learning how to make a budget, or that $200 charged on a high interest credit card can end up costing you $400 if you don’t pay off the balance, you’re in good company.

Teaching students about money and money management isn’t a priority in most schools. The majority of states have no requirements for students to learn even the rudiments of economics or financial planning, according to the Council for Economic Education.

And it can often be difficult to know where to go to educate yourself.

Lack of money knowledge can have real consequences

Financial products have gotten increasingly more complex. In our grandparents’ day, there weren’t so many options for retirement or investing. Saving money often meant putting money in the bank. Now we just need to know a lot more.

Lack of financial literacy helped lead us into the worst financial crisis since the Great Depression. Remember the housing crisis? Tens of thousands of people purchased houses they couldn’t afford, and then defaulted on mortgages that were hard to understand.

Even today, the average debt on credit cards keeps creeping up, and households owed  $16,000, as of 2017.

Unfortunately, too many people in the U.S. lack access to basics about financial education.

At the same time, there’s a savings crisis–not enough people are planning to put money away for emergencies, or to plan for their retirement. The median household savings for retirement was $5,000, according to one recent survey. Not nearly what will be required for retirements that no stretch on for decades.

Fortunately there are plenty of ways to get smarter about your finances, and to give yourself the financial education you need and deserve, so you can save and make smarter decisions with your money.

For starters, there’s lots of free information available to everyone. Here are just a few places to look:

Government sources

The federal government has a number of sites, including Mymoney.gov, created by the Federal Financial Literacy and Education Commission, which is a financial literacy partnership between dozens of U.S. departments and agencies.

The Consumer Financial Protection Bureau (CFPB) has information on everything from auto loans and mortgages to student loans and buying a house.

The Jump$tart Coalition for Personal Financial Literacy  also has lesson plans that can help get kids involved early in their financial education.

Get real with yourself

Here’s a quick checklist of questions that can help you gauge how you’re doing, no judgements.

If you answer ‘no’ to one or more of these questions, it might be a good idea to brush up on your financial education.

Getting smart about money is a lifelong process. Education is the first step toward learning the basics you need to have a successful financial life now, and in the future.

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By Jeremy Quittner
Jeremy Quittner is the senior writer for Stash.

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