Financial Literacy Strategy To Help You Build Generational Wealth
Financial literacy strategy – Financial education is the greatest equalizer and when it comes to money, financial literacy strategy is more powerful than ever known. Those who are empowered with even the basic level of financial literacy for adults are much more likely to have less debt, greater savings and more assets than those who don’t, according to financial experts.
In a nutshell, financial literacy is the cognitive understanding of financial components and skills such as budgeting, investing, borrowing, taxation, and personal financial management. The absence of such skills is referred to as being financially illiterate. Read also 3 Best Salary Negotiation Tips To Help Secure A Higher Salary
The intangible benefits of a strong financial knowledge is as equally important. Things like the confidence to invest, save and the most important of all is that you will pass sound financial literacy strategy down to your children. This last statement is a key ingredient to building generational wealth with financial literacy which you can’t depend on your kids school to do it for you.
Keep reading to find out why learning financial literacy is just as necessary as earning when it comes to building generational wealth.
Lack of Financial Literacy Strategy Is The Rule
There is no shortage of riches-to-rags cautionary and advice about people who become broke after blowing through mega-fortunes of riches, then later turning from “Grace to Grass”. Some squandered it on material excess such as supercars and mansions, while others fell victim to fraud or financial molestation.
However, the underlying cause is always the same “lack of financial literacy”. The high and mighty of the celebrities and athletes are not alone who face financial constraints after “grace”, things appear to be getting worse globally.
According to a study, the financial literacy rate among people fell from 42% to 34% between 2009-2019, despite the fact that 71% think they have a high level of financial knowledge. Read also 15 Simple Budgeting and Debt Management Strategies To Become More Financially Stable
Few people could correctly answer even the most basic questions about financial risk, compound interest and bond prices. Only a little more people could answer simple questions about inflation and fewer could answer elementary questions about mortgages and interest rates which actually indicates that financial literacy for adults is gradually decreasing.
With Financial Education Comes Empowerment
According to economic research, more than 40% of people with insufficient financial literacy strategy rely on friends, family and acquaintances for financial knowledge and support. But for the financially literates, that percentage is a cut in half of financial literacy strategy which leads to empowerment and self-reliance. Money without financial intelligence is money soon gone, so take note that your mind is your biggest investment. By accumulating some time per day studying financial literacy strategy, you gain better control of where your money goes. Read also 4 Important Steps To Take Right Now To Cut Down Debt And Secure Your Financial Future
That standard applies to everyone, from those earning eight figures to the opposite end of the socio-economic spectrum. For instance, people in the lowest income bracket with no high school certification saw their net worth grow by nearly 27% after attending an employer-sponsored retirement seminar according to a university research.
Why Financial Literacy Is Low
There are two major reasons why most people are not financially literate enough, lack of financial education in schools and it’s not taught at home either.
1. Financial Literacy Is Not Taught in School
Research shows that students who go to school that requires financial education courses are more likely to save money, less likely to max out their credit cards, less likely to make late payments and more likely to take on a healthy amount of financial risk as well.
However, the issue is, that being said isn’t simply a representative of the average financial education. Teenagers graduate from high school knowing the preamble to the Constitutions, to remember the order of algebraic operations. But despite the fact that they will be bombarded with credit card offers from the moment they become eligible, while applying for student loans, they are likely to leave school without the slightest idea of how credit works, how interest compounds or the basics of saving, spending and managing money. Financial literacy for students is a crucial factor every parent should take note.
Financial literacy is never taught in schools, so most people, upon receiving their degrees, almost never achieve the life of their dreams due to lack of financial education. Read also 5 Important Good Credit Card Habits To Improve Your Credit Score Daily
2. It is Not Taught at Home As well
Also, the longstanding argument against teaching personal finance in school is that the subject matter is beyond the scope of the common educator, concluding that financial literacy should fall under the purview of parents at home. However, it’s hard to make a serious point to the contrary and of course, they can’t and in most cases, they don’t at all. A study found that 69% of parents have at least some reluctance when talking to their kids about money. For context, that’s close to the same percentage of parents who are uncomfortable talking to their kids about sex. But the bottom line is that financial literacy is most necessary in the personal finance life of every individual, from kids to adults and will help you build a lasting wealth. Read also How To Achieve Your Financial Goals Easily As Couple
The Fundamental Components of Financial Literacy
Being financially literate allows an individual to be better prepared for specific financial roadblocks, which, in turn, decreases the chances of personal economic distress. Achieving financial literacy is crucial in today’s society due to everyday facets of life, such as student loans, mortgages, credit cards, investments and health insurance. Read also Check Out How Much Money You Should Have in Your Savings At Every Stage Of Life
Financial literacy consists of several financial components and skills that allow an individual to gain knowledge regarding the effective management of money and debt.
There are four main uses for money in budgeting that determines a budget, spending, investing, saving, and giving away. Creating the right balance throughout the primary uses of money allows individuals to better allocate their income, resulting in financial security and prosperity.
In all, a budget should be composed in a way that pays off all existing debt while leaving money aside for saving and making beneficial investments.
In order to become financially literate, an individual must learn about key components in regards to investing. Some of the components that should be learned to ensure favorable investments are interest rates, price levels, diversification, risk mitigation and indexes. Learning about crucial investment components allows individuals to make smarter financial decisions that may result in an increased inflow of income. Read also 5 Important Good Credit Card Habits To Improve Your Credit Score Daily
3. Credit And Borrowing
Often, almost every individual is required to borrow money at one point in their life. To ensure borrowing is done effectively, an understanding of interest rates, compound interest, time value of money, payment periods, and loan structure is crucial.
If the criteria above are understood sufficiently, an individual’s financial literacy will increase, which will provide practical borrowing guidelines and reduce long-term financial stress.
Having knowledge about the different forms of taxation and how they impact an individual’s net income is crucial for obtaining financial literacy. Whether it being employment, investment, rental, inheritance, or unexpected wealth, each source of income is taxed differently. Read also 28 Best Money Habits To Help You Grow Your Bank Account
Awareness of the different incomers tax rates permits economic stability and increases financial performance through income management.
5. Personal Financial Management
One of the most important criteria, personal financial management, includes an entire mixture of all the components listed above.
Financial security is ensured by balancing the mix of financial components above to solidify and increase investments and savings while reducing borrowing and debt. Achieving an in-depth knowledge of the financial components discussed above guarantees an increase in an individual’s financial literacy. Read also How To Live A Rich Life In Your 20’s – The 4 Sure Ways To Live The Good Life
Why Financial Literacy Strategy Is Necessary
Obtaining financial literacy is one of the most important things an individual can do to ensure prolonged financial stability. Being financially literate is a skill that brings forth an assortment of benefits that can improve the standard of living for individuals through an increase in financial stability.
√ Ability to make better financial decisions
√ Effective management of money and debt
√ Greater equipped to reach financial goals
√ Reduction of expenses through better regulation
√ Less financial stress and anxiety
√ Increase in ethical decision-making when selecting insurance, loans, investments, and using a credit card
√ Effective creation of a structured budget. Read also How To Practically Reward Yourself With Ten Percent Paycheck Savings Every Month
Problems Caused By Financial Illiteracy
Financial Illiteracy is a problem that affects every level of Society that should be tackled. It is ironically, even while the US is regarded throughout the world as a financial superpower, many of its citizens are completely ignorant when it comes to managing their money and planning for the future. The problem of financial illiteracy in the world runs far deeper than what can be seen on the surface. Poor financial planning has a negative impact on people’s entire lives and since parent’s financial behavior is emulated in their kids, the problem can last for generations. Fortunately, there is a viable solution to financial illiteracy, when high-quality financial education is endeared by all to capitalize it.