What Is Financial Literacy and Why Is It Important?

“It is an awareness of how money should be spent and managed, and how many people can use it in ways that would make a person more financially secure in the future.”

What is financial literacy? Financial Literacy is the ability to understand the situation correctly and to make the right decisions about it. An individuals’ understanding of their finance and how it affects their credit score is only a small part. How to access your credit score and interpret it is also only a part of it. People need to know their options so they have the tools to make the right decision. The key to long-term financial wellness comprises these small steps you make during your life. The sooner you can start on the road to financial literacy, the better They don’t know how to set financial goals, don’t understand their financial capability, and don’t plan their retirement savings properly, if at all. With proper financial education, their ability to make better decisions, manage a financial crisis, avoid delinquent loan payments, save money on financial products and services, manage their bank accounts, and use their common sense would significantly improve. Financial management and personal finance should be taught as a set of necessary skills in school.

Just like reading literacy, financial literacy is essential and something everyone needs to know. So too is financial literacy. Think of the various benefits of a world of readers. When people learn to read, it opens several hundred years of knowledge to the reader. Because of reading, you can enjoy a book, or learn from it, or both! We can learn about famous and interesting people from books. We can get the news, both world and local. We can learn about upcoming events. We can learn how to make something or do something! The list of benefits is endless.

Purchasing Things and Hustling up More Money

The first financial lessons we learn are about purchasing things. It might be handling lunch money for school, an allowance for chores or money was given to us for a birthday, or even money from the Tooth Fairy for our baby teeth. We all have these unforgettable memories in common. My first experience was with a well-to-do aunt. She didn’t visit frequently, but when she did, she gave me a fistful of coins. It was a good lesson because I counted them up and then decided what to spend them on. Somehow the money my auntie gave me was always just short of the next purchase, and I had to figure out how to make a little more to get what I wanted. So I learned entrepreneurship from this. Some of my various schemes were; going around the neighborhood collecting bottles and returning them to the supermarket for the deposit and various other methods.

Payroll and Taxes

There’s an old joke about a teenager who went to work at a trendy fast-food restaurant at his first job. The name of the restaurant doesn’t matter. When he got his first paycheck, upon examination, he exclaimed, “Who’s FICA and who told them they could make money out of my check!” (FICA is an acronym and is a Social Security tax; Federal Insurance Contributions Act.)

One clever father started teaching his kids about taxes at an early age. Whenever he brought home a bag full of burgers or a pizza, 30% of them were missing as he had removed a portion before-hand. He did much the same with the shakes. Imagine his daughter’s surprise the first time when she exclaimed in dismay, “Somebody already drank some of it!”

I’ve heard that he even demonstrated the feeling it gave one by eating 30% of an ice cream cone in their presence before handing it to his kid. I don’t know if the story is actually true, but it should be! I was warned, thank god, by my parents about what to expect.

Banking and Credit

Many young adults nowadays don’t get the benefit I had in learning early about banking and credit. Luckily in high school, I was already learning necessary money management skills. At age 16, I was able to open a bank account (of course, with my mother’s permission, as it was required), and at age 17, I took credit for a used car and had a payment booklet. From this, I learned about interest rates, credit scores, and debt in general. I knew that keeping money wasn’t free and that the bank charged a service fee. It would be another ten years before I had a checking account (mine was a simple savings account) and learned the hard way about overdraft fees, bounced checks, and what NSF meant. (Non-Sufficient-funds)

EFTS (Electronic Funds Transfer System) was in its infancy, and although credit cards did exist, they didn’t work electronically at all yet. Debit cards were a concept not yet born.

Loans and Mortgages

Fortunately, I had little experience with short-term loans when I was 21 years old, and most financial concepts were not strange to me. I had used the necessary range of financial services, but the ability to understand mortgages, however, didn’t come easy. Amortization? Equity? Financial decisions just got harder. Now the concept of debit cards was taking off, and personal financial matters became easier really. Joint checking had been particularly problematic, with both spouses writing checks out of two check-books, one had to reconcile the figures at the end of almost every day; otherwise, there would be a huge mess later.

Budgeting

I acquired budgeting skills early on from a very unusual source – driver’s ed. As one of our projects, we were required to plan a 1500-mile trip with X amount of dollars. I don’t remember how many dollars we were (theoretically) given, but I do know that at the time, the average price of gas was $0.57 per gallon. In any case, I learned to budget and estimate costs in my teen years, and it has stayed with me until now. It has been utterly useful.

Investing and Speculating

Here again, I was fortunate. I took an advanced class in applied mathematics in the 8^th grade, around age 13, to be a precursor for later college studies. One of the exercises was to spend $500 imaginary dollars on the NYSE, record the results every day, and report our findings to the class at the end of the term. I don’t remember the specific results, nor the names of the stocks I invested in, but I remember that it is a lot of fun! I remember that Blue Chip stocks are the best bet for steady growth and security.

Saving and Retirement

Do you know what a 401-K is but don’t have one? We all know what Social Security is and have it, but do we understand how to calculate the income we will get from it when we retire. How do we figure how much money we’re going to need? While there are many classes, advice, workshops, seminars, and other help out there, my gut feeling is that many are self-serving; they are trying to sell you something. It will be more a matter of making our lifestyles fit our income, not the other way around.

The Need for Financial Literacy

So, as you can see, my financial literacy has evolved slowly as each new issue arose in life. Might life have been better for us if we had been more financially literate earlier in life? Maybe. Do the youth of today need to become financially literate faster and sooner? Unarguably yes!

What I’m thinking is something like what we used to call home-ec, but expanded upon and with more of an out-of-the-home focus, not only on the household budget but also on all the new and upcoming financial considerations are bound to impact this and future generations. It should be more than one semester. Perhaps even started in middle school and continued in high school. It could even be called Financial Literacy Class. Why not? I appreciate honest, direct labels on things.

In this next part, I would like to give some examples of how financial literacy is connected. It might only be a partial solution to some of them, but without financial literacy, the youth of tomorrow are doomed. While there are many examples of financial horror stories on the internet (Google them and see), they’re also so prevalent that I can tell you of examples that I’ve seen with my own eyes. I’m going to avoid talking about specific companies and people for legal considerations.

Job Insecurity

Where I come from, there’s a massive airplane manufacturer that has a significant impact on the local economy. It’s very prestigious to get a job there, no matter what the title. So, here’s what happened: This aircraft manufacturer had a pattern of hiring and firing that, on a graph, looked like a roller coaster. Actually, firing is the wrong word. They laid workers off due to lack of work. So, in previous decades they would see sporadic cycles of production. The company would get a massive order for airplanes and hire 200,000 engineers and blue-collar workers. Everything would be going along fine, and John (the name is fictitious) would start to feel comfortable, stable, and secure with his relatively new job. Over the previous two years, he and his young bride had saved up a substantial down-payment for a house. To make a long, painful story shorter to tell it here, they went ahead and purchased a home, and a couple of months later, John was laid off from his job and in time lost the house. He should never have gotten into it in the first place. Possibly if he had been financially literate, he could have avoided such a mistake.

The First Trap to Avoid

Credit is perhaps the number one trap that gets financially illiterate people. We’ve all heard stories of people who have gotten over-extended on their credit card debt. A financially literate person learns to moderate their credit card debt. They build it up to a certain predetermined level and then pay it down again. They refuse cards with high rates or other disagreeable terms.

Credit comes in other forms, however. I remember one advertisement for furniture for people with bad credit.

Rent-to-own! No credit check! No credit history needed! The thing is that this furniture was very cheap and exorbitantly priced, around 400%! The company was making their money on the furniture during the first quarter of the loan. After that loan, they didn’t care what happened to the furniture. That said, they still wanted to receive payment for the next ¾ of the term of the loan. What could save someone from falling into this trap – a little financial literacy and some common sense. Instead of taking up the rent-to-own offer, save up for a couple of months and buy ordinary 2^nd hand furniture instead of going into debt for it.

Save for a Rainy – and Learn to Negotiate

We started receiving bills for the emergency surgery I had last year. It took a month for the bills to even start arriving. After a few smaller bills arrived ($50 to $150 each), an enormous account for the overnight hospital stay at around $4,000 came. I didn’t feel psychologically like arguing with the US medical insurance system’s bureaucracy, so we just paid all the bills. Since the hospital bill covered emergency surgery, the overnight stay, materials, four bags of blood, pain killers, etc., we thought it would be its end. The medical system is far more complicated than that, though. This week, we received more bills that totaled nearly $1,000 from people we’ve never heard of, providing services that aren’t itemized any further than “treatment.” Some of the bills noted that their services, whatever those services were, weren’t covered by insurance, meaning I will be stuck with the full cost. To be clear, I have no idea what they are for. It really shouldn’t be that complicated. Why in the world wouldn’t the service providers bill the hospital for services, and the hospital bill my insurance the same way any other sub-contractor relationship works? And why are they making their bills so vague? Is it beginning to feel like I’m getting scammed for spending a night in the hospital for an emergency? There really isn’t a good reason for organizing the system this way. It’s expensive, time-consuming, and wasteful. This person’s account of what happened after their hospital stay might have had a better ending if they had had some formal financial literacy training—Saving an emergency fund and dealing with insurance and medical issues. An emergency fund should be a part of everyone’s financial toolbox.

Lemon Car

Buying a lemon is another typical story that relates to financial literacy. A few years ago, I bought a Chevy Camaro from a used car lot. On the way home, it started smoking horribly. As it turns out, there were multiple things wrong with the car. It had a torn rear seal, and it was leaking what should have been transmission fluid, except that it wasn’t transmission fluid; it was something else the mechanic had put in it to get it to drive a few miles without smoking. I honestly don’t know what they were thinking. I wasn’t that young, and I knew the lemon laws. I just turned it directly around and drove it back. I insisted on them giving my money back and tearing up the installment loan contract I had signed. They resisted, but since I hadn’t given them any time to do anything with the money, there was nothing they could do except give it back to me. However, most people who aren’t so educated about the law might have a different outcome than I did. That’s the importance of learning about personal finance and being financially literate!

Student Loans

A Student loan is also a problem that could be mitigated with financial education of some sort. A student loan may not be the way to go if one can get a scholarship of some sort. I know this very well, as I’ve spent a total of about six years in college and about 8-10 years in institutions of higher learning, and I haven’t paid a dime out of my pocket. In the United States, it’s estimated that student debt has now reached $1.7 trillion in student loans. Last year 141 Billion dollars were offered in grants alone in the US.

Financial Education Can Certainly Pay off in the Long Term

Financial literacy is essential since it allows people to become self-sufficient and have financial stability. This includes telling the difference between wants and needs, saving money, paying their bills, managing a budget, buying a home, paying for college, and planning for retirement. Financial Literacy creates a road-map that will take people down the path of making sound financial decisions. Financial literacy empowers people. A deficit of financial education, credit, interest rates, or investments is intimidating and leaves them at a disadvantage. You don’t need to be a financial genius, but knowing how interest rates work, the difference between stocks and bonds, and the factors that influence your credit rating, lead people to ask questions and seek out the best options. It also lowers stress levels. When people are well educated in their finances, they can change their investments or stay with their current strategy.

If you need courses to help you gain financial literacy, there are many options out there! EVERFI’s K-12 Resources Are Available at No Cost to Teachers, Schools, and Districts are a great option.

They offer banking basics, income and employment, budgeting, consumer skills, managing credit and debt, financing Higher Education, and insurance.

OVERVIEW

“EVERFI: Financial Literacy for High School is a digital education program that teaches students how to make wise financial decisions to promote financial well-being over their lifetime. The interactive lessons in this financial literacy course translate complex financial concepts and help students develop actionable strategies for managing their finances. Immersive digital environments and diverse characters bring modern, relevant financial education objectives to life. Students accelerate their financial understanding through problem-solving, self-reflection, and games that provide real-life scenarios for practice.”

https://everfi.com/courses/k-12/financial-literacy-high-school/

Resources for Teachers – Financial Literacy for High School Students – 14 lessons

Are You Teaching Financial Literacy To High School Students?

The teaching curriculum consists of fourteen lesson plans & worksheets designed to augment a semester course in life skills and personal finance management. The Teacher’s Guide, compiled in a separate, easy-to-use notebook, includes an outline of the curriculum:

·      Goals

·      Lesson objectives

·      Suggested resources

·      Teaching notes

·      Chart indicating appropriate age groups for the critical learning offered in each lesson

·      Presentation slides

·      Worksheets

·      Answer keys to worksheets (when necessary)

Finding Financial Literacy Curriculum

For High School Students

Looking around online to find useful and engaging educational content can be a daunting experience. If you’re a professional on the hunt for a financial literacy curriculum for high school students, you’ve come to know how challenging it is. You can end that stressful hunt now because the NFEC has a solution for you. Our dedicated team has artfully crafted a top-to-bottom guide designed to help anybody take advantage of top-quality educational material related to this very topic. Backed by several years of success in this field, the NFEC offers financial literacy curriculum for high school students to individuals and organizations worldwide. Our solution enables our partners to leverage high-quality teaching resources that can be shaped for any audience – regardless of their socioeconomic standing or age.

The materials we’ve designed are engaging and rigorous while simultaneously providing our participants with a fun knowledge-gaining journey.

GENERAL FINANCIAL LITERACY COURSE

Required for High School Graduation

Course Goals  Course Topics  Curriculum Resources

GFL Scope & Sequence (pdf) Passport Test  Sample Disclosure Letter (pdf)

Strands & Standards  Teacher Endorsement Info

Textbook Recommendations  Utah’s Financial Literacy Background (pdf)

The half-credit General Financial Literacy Course is designed for junior and senior students and represents those essential and necessary standards for all students.

·      Strand One: Decision Making and Goals

·      Strand Two: Income and Careers (the money you earn)

·      Strand Three: Savings, Investing, and Retirement Planning (the money you keep)

·      Strand Four: Principles of Money Management (the money you spend)

Course Goals

1.    Be informed and prepared to be effective managers of financial resources, enabling them to achieve long- and short-term financial goals and security.

2.    Be engaged in establishing career goals that will provide adequate income and personal fulfillment.

3.    Demonstrate an understanding of personal financial planning and money management skills.

4.    Understand personal and societal consequences of financial decisions.

Course Topics

The General Financial Literacy course includes lessons on:

·      Planning and goals

·      Career preparation

·      Spending and credit

·      Consumer protection

·      Income

·      Money management

·      Saving and investing

·      Risk management

These are only some of the resources presently being offered online. There are many other resources available.

Sources:

·      Reasons Why Financial Literacy is Important – Conektome

·      https://layingdownlawdebt.wordpress.com/2016/08/11/medical-bills-part-2/