Since this is National Financial Literacy Month, I thought I would start with a definition. “Financial Literacy is the ability to make informed judgments and effective decisions regarding the use and management of money”. Why is it important and when should you learn it?
Financial Literacy is a basic skill that is needed to function in society. Every person needs these skills to deal with financial problems, manage money and to make sound economic decisions. Learning to deal with financial issues at a young age will help manage money as an adult. Many young people do not know how to manage credit or how to stay out of debt. Why is this important?
What do you want to do that may cost a lot of money? Do you want to go to college, buy a car, buy a house or save for retirement? These are financial goals that require planning, saving and investing. Planning requires controlling your daily expenses and following a budget. Now you can look at your long-term financial goals and develop a plan to achieve your goals.
Budgeting is a plan to help you reach your financial goals. Budgeting allows you to know how much money you earn and spend. It allows you to organize your expenses so you know exactly where you are spending your money. A budget helps you control your expenses since you decide what happens to your money. This document gives you visibility into your spending habits and forces you to set priorities. In this way you set financial goals and you can track your progress toward your goals.
Many goals such as buying a home, saving for retirement or your children’s education take years to achieve. Long-term goals or multi-year budgets are necessary. In business, they call this strategic planning. You establish a goal that may take five (5) years to achieve, such as saving for a down payment to buy a house. That is your long-term goal! Then you develop a budget to reach that goal. You are breaking down the five (5) year goal into five (5) one year budgets to reach your goal in five (5) years. Each annual budget leads into the next until you achieve the down payment in five (5) years. Is it really that easy?
Making smart financial decisions require knowledge and skills. You have to educate yourself about budgets, making better financial decisions, controlling your expenses, developing a plan to reach your goals, and monitoring your progress. Is that easy? No, it requires discipline, determination and sacrifice, but the reward is achieving your goals. Evaluate and monitor your progress weekly, monthly, or quarterly and adjust your efforts to reach your goals.
This is just the beginning of financial literacy! Budgets help you control your expenses and planning will help you reach your goals. Personal financial literacy is more than reaching your goals and budgeting. Making smart financial decisions require reading a lot of material and finding the information that you can use in your personal financial decisions. This site is but one place to learn about financial literacy, so read a lot of perspectives so you will find what works for you. What are you going to do?
Photo by: theritters
Budgeting is the key to any financial success. If you can’t budget then your never going to be able to keep debt off your books.
Budgets help us achieve our goals! To me budgets provide a structure to control expenses and provide you the discipline to reach your goals.
Budgeting is so important, but most people don’t realize this until they are spending more than they take in. They also, then, usually wonder where it all went!
Whether it is a budget or something else, you must take control of your finances! Budgeting is an excellent tool and structure to help you achieve your goals.
No credit cards for teens and make them get a job and see how working really is!
My children had my credit card when they were teenagers! It was a emergency backup because they entered college at 17 yrs old. They never abused it! I would rather have teenagers learn how to use credit cards responsibly under my guidance than on their own. BTW, my children worked for their spending money during college.
Just got finished calculating the income tax rates in the area we are moving to this summer. Then figured out how much take home pay would be after 401 K contribution. Next, figured out how much mortgage payment was reasonable for us. There’s always something!
I like that, no surprises! If more people did that, we would not have a financial crisis.
Depending on where you live, teaching kids about finances and such can be difficult if all they see if people that have access to money. Unless someone actually struggles, it can be hard to teach what struggling is like. So, it is very important to really teach the kids from your own actions how to manage money because there are so many poor examples in the real world.
My parents were successful (perhaps rich), but they raised me to be financially responsible. They modeled the financial skills, I use today.
The school system should really push financial skills on kids earlier. Come to think of it, I don’t think I learned about money and finances until college, and that was economic theory, not finance skills. Like any other problem, early education paves the way to a more stable future. I wonder if we would have avoided the recession if many of the adults who took on insane mortgages were educated earlier in their life.
For some reason, people are left on their own to learn about personal finance. Education may have removed the ignorance excuse, however many people believe that the bank is at fault. I certainly believe the bank’s policies contributed to the problem.
Maybe you can open a financial literacy school for teen. That’s would be extremely helpful to young adults. Their lives are so busy these days though. It’s a shame the school system doesn’t have this course in the curriculum.
I created a class on personal financial management I teach in my high school that is pretty effective! I plan on teaching an abbreviated class at the Boys/Girls Clubs later this year (volunteer basis). Start a school, Hmmmmmmmmmm, maybe a class or seminar?
I would like some more games, even if it’s online games that focus on finance. I know my son does something called studyisland online. It’s an educational site that teaches math and logic skills.
Maybe have the financial game site work with emoney (I made that up). Then as the student advances, have the expense, income, earned income, passive income, investment income and taxes introduced…
Although I think parents ( as role models) have a material effect on kids, games are a good tool too. I think it is an opportunity for parents to relate to their kids through the games. They can play the games with their kids and explain some of the reasoning behind the game.
If it wasn’t for my high school history teacher I might not have even known how to balance a checkbook. It’s amazing to me how little financial literacy is taught at home and in school. Glad you are making a difference!
Thanks, money is my favorite subject!