We all agree that we got into so much trouble with debt because of the deadly financial mistakes that we made in the past. It may be true that the accumulation of your debt happened because of job loss or the nationwide economic turmoil. However, the credit card debt that you accumulated and the unnecessary purchases that you made with your money is part of the reason why you are having financial troubles.
Financial education has recently been gaining popularity because financial experts believe that it will help consumers make the right choices about their money. But the real question that should be asked is this – is it enough to keep consumers from financial troubles?
What does it mean to be financially literate?
Also known as being financially literate, this simply means getting the right principles about money management. Investopedia.com defines financial literacy as possessing both “knowledge and understanding of financial matters.” While finances is generic in the sense that it could mean business finances or the overall economic financial condition, it is primarily associated with your personal finances.
The finance authority website further explains that being financially educated means:
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Having the knowledge that will allow smart decision making about financial concerns like saving, investing, insurance, real estate, retirement and even tax planning.
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Knowing what compound interest, credit card use, financial planning, consumer rights and time value of money means.
The Investopedia definition stresses that the absence of financial education can lead to poor decision making that can ruin the financial health of a consumer.
In light of the economic troubles that we just went through (or still recovering from), all of these definitions about being financially literate solidifies its importance. In fact, the government launched the Financial Literacy and Education Commission back in 2003 to provide the resources that will help consumers acquire financial education.
Evidently, the need to be a better financial manager is necessary but the real question is, when should this knowledge be imparted to consumers? While the government scrambled to infuse K-12 curriculum with adequate personal finance lessons, it leaves us wondering – will it be remembered by our children when the time comes for them to make a financial decision?
How do American consumers fare in their knowledge of personal finance?
Based on a study done by the NFCC.org (official website of the National Foundation for Credit Counseling), the 2013 Consumer Financial Literacy Survey revealed that:
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33% of consumers claim to have learned about personal finance from their parents
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78% of adults think that they will benefit from getting additional advice from a financial expert
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40% rate themselves with a C, D or F when it comes to their knowledge of personal finance. It is lower than 42% in 2012 and 41% in 2011. It is significantly lower than 65% back in 2010.
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28% revealed that in times of debt problems, they will first turn to family and friends for help.
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27% indicated that they will reach out to a professional in times of debt difficulties.
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22% of consumers are confident enough to think that they can deal with their financial problems without any outside aid.
In another site, the JaColorado.org, the compilation of different studies reveal the following information about American consumers and financial education.
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A Capital One 2011 survey showed that 57% of parents discussed with their teens the concept of needs and wants. 28% of parents went as far as to create a budget with their child. Teens show a different view, with only 26% of them claiming that the needs and wants discussion happened with their parents. Only 15% is said to have created a budget with their parents. 55% of these teens say that they wish to know more about money management – 88% and 87% of them are interested on investing and savings, respectively.
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An American Express 2011 survey reveals that 57% of parents are not happy with how colleges and high schools teach their kids about personal finance.
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A Visa Inc. 2011 survey revealed that 37% of adults had to learn money management through their own initiative. 25% said they learned from their mothers and 22% from their fathers.
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Am iVillage 2010 survey revealed that 41% of mothers wish they had more information about money management so they can pass it on to their children. 37% wishes there were more online articles about money from financial experts. 30% of them go to an online source when they can questions about money – behind a financial advisor (37%) and a relative (52%).
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The National Endowment for Financial Education reveals how 89% of teachers agree that K-12 students should be taught about personal finance but none of them think they are ready for the job. Only 11.6% have gone through a personal finance teaching workshop.
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An American Express 2010 survey revealed that 71% of parents believe that they 6-16 year old kids understand the basic concepts of recession based on what they are currently going through. 91% of the parents said that they will teach their kids personal finance lessons. 20% of kids mentioned to parents that they understand that some things should not be bought because of the recession.
All of these reveal that American consumers are starting to adapt financial education into their lives but whether it is effective or not is still uncertain. One thing is for sure, they want to learn about money management because they understand the consequences of being ignorant about it. The last survey from the American Express reveals that teaching kids timely lessons about the recession makes them make good decisions about certain expenses. This is a good sign that experience and application, more than the theoretical education may be more effective in changing financial behaviors.
Tips to improve financial literacy
According to a Time article written by Dan Kadlec in October 25, giving financial education may equip consumers with the right knowledge but it may not be enough to change financial habits and behaviors. The Time.com article mentions a report from the National Endowment for Financial Education that reveals how timing may be the key to change the bad behavior of consumers. Giving “just-in-time” information that is relevant moment before a financial decision is to be made could be more effective. According to the report, this is the time when consumers are more susceptible to change their financial beliefs and that influences their behavior too.
So how do you ensure that the financial education that you are searching for will really make its mark on your financial behavior? By stocking up on financial principles and applying them anyway you can. When you fail to apply theories, you could end up failing to remember them. How can you be a financial success if you cannot implement your financial literacy lessons at the right time?
This might be a bit hard to determine but it all boils down to how important financial education is to you. Your commitment to learning will eventually be your saving grace when it comes to proper implementation. So try to apply financial habits whenever you can and set up yourself as a good example for your kids. As mentioned in various surveys, children get the most understanding of finances from their parents.
Here are a tips that you can look into.
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Put the household on a budget plan and involve the whole family in its creation and implementation.
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Practice smart spending by listing what you need to buy before going on a buying errand.
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Save what you can and make sure your emergency fund is always stocked.
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Learn about investing and encourage your children to start their own.
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Continue to expand your knowledge. Always be on the look out for new personal finance information. Read before you sign anything. If there is anything that you cannot understand, ask.
In the end, financial education is necessary to keep consumers from money problems but you need to think about how you will implement it. Memorizing principles and habits will mean nothing if you fail to apply it in your life.