Take Control of Your Finances During National Financial Literacy Month

It’s always a good time to brush up on your financial skills, but April is a particularly good time. Taxes are due, so many people are taking stock of their finances and reflecting on their income and spending habits. It’s also National Financial Literacy Month.

What Is Financial Literacy?

Financial literacy refers to the skills you need to manage your money effectively. It doesn’t matter if you’re earning minimum wage or pulling in a high six-figure salary. If you don’t know how to manage your money, you can end up in debt without the security you need to navigate emergencies.

To see why financial literacy matters, consider two families: the Abbots and the Bennetts. Both families have the same annual income and the same number of children, and they’ve faced similar circumstances, but the Abbots have managed to save for retirement, college tuition, and rainy days, while the Bennetts are living paycheck to paycheck and drowning in debt. The difference comes down to financial literacy.

• The Abbots have taken advantage of HSAs, 529 Education Savings Plans, and 401(k) employer matches to save, while the Bennetts have not.
• The Abbots pay off the full balance on their credit cards each month to avoid interest, while the Bennetts pay the minimum amount due and have mounting debt from interest.
• The Abbots live frugally so they can save some money each month, while the Bennetts spend any extra money they have on things like dining out or expensive clothes.
• The Abbots maintain robust car insurance coverage, while the Bennetts maintain minimum coverage and have had to pay for damage out of pocket.

How Financially Literate Are You?

No one is born knowing how compound interest works or how to manage a monthly budget. You have to learn these things, and if you haven’t learned them yet, you’re not alone.

According to the World Economic Forum, financial literacy in the U.S. is about 50%.

Many people still have a lot to learn about personal finances. The good news is that there’s always time to increase your knowledge, and there are plenty of resources available to help.

Financial literacy includes knowing how to…

• Use credit cards and other loans responsibly and avoid high interest rates.
• Create and stick to a responsible monthly budget.
• Save money for emergency expenses and future plans.
• Use financial accounts, such as 401(k)s and HSAs, effectively.
• Avoid financial and investment scams.
• Improve your credit score so you can qualify for good rates.
• Protect your assets with appropriate insurance.

Five Building Blocks of Financial Literacy

If you’re trying to build your financial literacy, it makes sense to start with the basics. MyMoney.gov, a website maintained by the Federal Financial Literacy and Education Commission (FLEC), identifies five building blocks of money management:

• Understand your pay and benefits so you can make the most of what you earn.
• Save & invest. Set aside money for future goals, even if you can only save a little.
• Build an emergency savings fund and maintain insurance to protect your financial situation.
• Shop around and compare prices to get a good value for your money.
• You may need to borrow money for essential purchases, and doing so can help you build credit, but you also need to watch out for interest costs and debt accumulation.

Practical Resources to Help You Take Control of Your Finances

It’s easier to take control of your finances when you have the right resources.

• Educate yourself about investment scams. Scammers often promise big returns, and people who are trying to manage their money can be especially vulnerable. Protect yourself by learning about the signs of investment scams and how to avoid them. gov and the FTC have good information.
• Calculate your costs. gov has calculators to help you pinpoint the right tax withholding amounts, how long it will take to pay off debt, how to plan for retirement, and more.
• Improve your credit score. gov has information on how to get a copy of your credit report, how to improve your credit score, and how to place a credit freeze to protect yourself from fraud.
• Create a monthly budget. Sticking to a monthly budget is an essential part of managing your money effectively. gov has resources to help you make a budget, including a video, tips and a worksheet.

You’re Not Alone

Financial issues can be overwhelming, but you’re not alone. In addition to the resources listed above, you can secure the support of professionals who can help guide you.

Heffernan Insurance Brokers can help you protect your finances with appropriate insurance coverage, while Heffernan Financial offers retirement plan consulting and wealth management services. Learn more.