The Center for Financial Literacy at Champlain College recently published its 2016 National Report Card on Adult Financial Literacy, and the results indicate there is much room for improvement. 59 state-specific data points were used from 18 recognized organizations to formulate a report card grade for each state. Unfortunately, no state received a grade of A+ or A. Only 22 states received a grade of B- or better.
Is your state making the grade? Click here to find out more information or download the full report.
Every day we make financial decisions, which impact us and our families. Yet, do we possess the requisite skills to make such decisions? The 2016 National Report card on Adult Financial Literacy suggests many individuals need to make significant progress.
The knowledge and skills attained through financial literacy help limit poor financial decisions and assist in alleviating difficult financial circumstances. It is necessary for individuals to obtain such skills in order to best position themselves and their family for financial success. Financial literacy is more than merely balancing a checkbook. It is the comprehension of how today’s decisions will impact long-term goals.
Donald Laackman, President of Champlain College, says financial literacy is an urgent need for people of all ages, economic situations, and backgrounds to better understand how to manage their money and develop lifelong habits necessary for a healthy financial life.
Here are 4 simple, yet effective tips to immediately improve your financial literacy:
Review & Understand Financial Statements
When your statements (e.g., bank, investments, pensions, mortgage, credit card, etc.) arrive in your mail, do you quickly glance at it and discard? Or, when you receive an email indicating your statement is available, do you simply click delete? Instead, challenge yourself to review your statements and test your understanding. You should be able to articulate what is being reported and understand the acronyms.
Know Your Cash Flow Needs
Many of us can recall our annual salary off the top of our head; however, our household budgets usually operate in shorter frequency (e.g., quarterly, monthly, etc.) Many tend to construct their budget based on their gross salary. These factors often led to misunderstandings of cash flow. Are you aware of your available cash flow after taxes and savings? If not, it is necessary to familiarize yourself with cash inflows and outflows. Additionally, a firm grasp of expenses is critical – one should know the amount of money that is needed to operate the household. Can you freely recreate your budget (either in your head or on paper) within a minute or two? If this task is a struggle, you need to get more acquainted with your cash flow needs.
Are You Maximizing Employer Benefits
Employer benefits are an important component of our compensation package. But have you thoroughly reviewed them since you first accepted your job? Benefit offerings do change, and as your career continues to develop more benefits may become available to you. Also, keep in mind your personal circumstances may have changed since the last time you made decisions. Often employer benefits are underutilized and need to be routinely reviewed.
Rely On Your Advisors
The professional advisors you depend on should be your advocate. As such, they will welcome questions and the opportunity to help you improve your financial literacy. If they are not inclined to help, then maybe it is time to find a replacement. Advisors recognize a more financially literate client can lead to more beneficial discussions. If you are only leveraging your advisor to improve your circumstances and not your knowledge, you should make it a priority.
The world of finance is becoming more complex by the day. While you may never become expert, you can strengthen knowledge and skills. Like other aspects of our lives, those who experience the most success have the discipline to turn knowledge into action.
If you were to list three key components of maintaining your physical health, what would you list? Your list probably consists of eating healthy, exercising regularly and getting enough sleep. We all know it, but why are some successful and some are not – discipline. Financial literacy is very similar – it can be intimidating, but can be achieved through one’s strong desire and discipline.