These days, most Americans are stressed about money. Especially when inflation is at 40-year high levels. And yet, when it comes to budgeting, saving and managing debt, many get some simple fundamentals wrong.
For example, according to one LendingTree survey, 65% of Americans think carrying a small balance on their credit card each month will improve their credit score. And that couldn’t be further from the truth.
Credit cards can be one of the costliest ways to borrow money due to their sky-high interest rates. Carrying a balance can also have a negative impact on your credit score. The recent Federal funds rate hike has caused credit card interest rates to exceed 20%.
Financial decisions are often complex and require more than just simple answers. Many Americans are unsure about managing their finances, and common money myths can make things even more confusing. It is essential to have a greater understanding of personal finance, and this requires more financial education and a shift in mindset.
Unfortunately, discussions about money are often considered taboo, and financial literacy is not adequately addressed in schools. Starting financial education at home, by talking to children about money from an early age, can prevent costly mistakes in the future. By doing so, we can empower future generations to make informed financial decisions and build a brighter financial future for themselves.
Personal finance in schools gains momentum
Meanwhile, the trend toward in-school personal finance classes is gaining momentum.
In the last year, seven more states required high school students to take a personal finance course before graduating, bringing the total to 18, according to the latest data from non-profit organization Next Gen Personal Finance.
In addition, there are 88 personal finance education bills pending in 28 states, according to Next Gen’s bill tracker.
I strongly believe that personal finance classes should be a crucial part of school curriculums. Today’s teenagers are inundated with information from various sources, including social media platforms such as TikTok, which are not always reliable. Without a solid foundation of financial knowledge, young people may struggle to differentiate between good and bad advice.
Moreover, with the advent of new credit products like “buy now, pay later” and the impact of rising interest rates, it has become even more critical to educate students about financial matters. Additionally, the recent banking sector crisis has highlighted the need for more financial literacy, making it essential to discuss these topics in schools.
Personal finance classes can help students learn essential skills such as budgeting, saving, investing, and debt management. These classes can also provide students with a better understanding of the economic system, including the role of banks, credit unions, and other financial institutions. By providing students with a strong foundation in financial literacy, we can equip them to make informed decisions that can lead to a more stable financial future.
Strong correlation between financial literacy and financial well-being
Many studies show there is a strong connection between financial literacy and financial well-being.
Research has shown that students who take personal finance courses starting at a young age tend to rely less on expensive sources of funding for college, such as private loans or high-interest credit cards. Instead, they are more likely to tap into lower-cost loans and grants to finance their education. Additionally, financial education can help students become aware of the various financial resources available to them, leading to a higher likelihood of enrollment in college.
These findings suggest that high school financial education requirements can significantly impact key student financial behaviors. Moreover, students who have taken financial literacy courses tend to have better average credit scores and lower debt delinquency rates in their young adult years, according to data from the Financial Industry Regulatory Authority’s Investor Education Foundation, which aims to promote financial education.
It is clear that financial literacy education is essential for young people to build a strong financial foundation and make informed decisions about their future. By teaching students about budgeting, saving, investing, and debt management, we can equip them with the tools they need to succeed financially and avoid costly mistakes. Additionally, financial education can help bridge the gap between financial insecurity and financial stability, paving the way for a brighter future for our youth.
In addition, a report by the Brookings Institution found that teenage financial literacy is positively correlated with asset accumulation and net worth by age 25.
Adults who possess higher levels of financial literacy are more likely to manage their finances effectively, according to research. They are better equipped to meet their financial obligations each month, including making loan payments in full and on time. Additionally, they are less likely to be burdened by debt or considered financially fragile.
The findings underscore the importance of promoting financial literacy across all age groups. By investing in financial education programs and resources, we can empower individuals to take control of their financial futures and achieve greater financial security.
They are also more likely to save and plan for retirement, according to data from the TIAA Institute-GFLEC Personal Finance Index based on research over several years.
Managing money is the hardest
The hardest part for an adult appears to be managing money.
Say, for example, you are saving for a down payment on a new home and you want to build a budget that also takes inflation and taxes into account. Nobody can do this in their head.
Some online tools can help, so you should use the technology that’s available.
