The term ‘financial literacy’ didn’t always exist. In fact, before schools and institutions started teaching children and adults about money, people had to turn to their inner circle of friends and family for advice. In the 90s, personal bankruptcies hit a record high despite a healthy economy.1 At the time, pensions were phasing out and retirement accounts like 401(k)s were on the rise.
The future of Americans now largely hinged on their own personal financial decisions, something that many were unprepared to take on. To address this issue, economists helped spearhead a financial literacy movement. Today, the majority of schools across the 50 states have a financial literacy program, but not all of them require students to take a course. Below are some of the top reasons for students at eligible high schools to take these courses, and why adults should seek their own financial education as well.
3 reasons financial literacy is crucial
1. Efficient budgeting
According to a 2020 report by the U.S. Federal Reserve System Board of Governors, one-fourth of those surveyed did not have any retirement savings.2 While retirement may be years or decades away for some individuals, it takes time to accumulate the savings needed to live comfortably later in life. This is just one example of a long-term goal, but there are a handful of others individuals may encounter during their lifetime. Others include saving for a house, a car, or a new addition to the family.
Saving for a long-term goal can feel overwhelming simply because of the larger amount of money typically needed to satisfy them. The steps, concepts, and tactics often learned through financial literacy will assist individuals in tackling these goals more efficiently. Plus, they help you remain mindful of and prepare for potential setbacks.
While long-term goals take a considerable amount of strategizing to reach, individuals should also budget for their daily life. From filling up the gas tank to grocery shopping, Americans make many purchases every day. Though buying lunch multiple times per week or occasionally feeding a shopping habit may not seem like a lot of money, these costs can add up over time and potentially throw a budget off track. Financial literacy helps individuals see the big picture and learn healthy spending and saving habits that work in their favor.
2. Sound financial decisions
The financial concepts and strategies individuals learn will help them make better decisions regarding their money. For example, understanding the relationship between credit scores and loan rates may motivate would-be borrowers to check or improve their score before applying for credit. This will set them up for success, as a good credit score opens the door to better loan rates and terms.
3. Healthy mindset
Whether someone makes $50,000 a year or $100,000, they can still benefit from what financial literacy has to offer. While there are obvious monetary benefits, there are less apparent mental benefits that are just as important.
Without the right tools, resources, and knowledge, navigating financial matters can feel like sailing upriver without a paddle. This can be incredibly stressful, especially when coupled with any fallout resulting from a poor money decision. The same knowledge and strategies that help an individual make wise financial decisions will also instill them with the confidence to pursue opportunities they may not have otherwise.
At General Electric Credit Union (GECU) we want to help our members reach and maintain financial success. That’s why we offer a wealth of complimentary resources aimed at helping them learn more about money and what they can do with it. This includes: