why financial literacy is important

Why Financial Literacy is Important

Erik Basics, Financial Education, Thoughts of a Mastermind 8 Comments

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“Let’s go out to eat!!!”

I had just played in a college kickball tournament on a Sunday afternoon and the team was hungry.

“Sounds good, where are we going?”

“How about Potbelly’s? It’s close and a lot of us really enjoy it.”

“Okay, I’ll join – but I don’t think I’ll eat and get something at home.”

It was sophomore year, and I only had $50 in my bank account. After paying for my Spring tuition and making some dumb decisions, I was down to my last dollars.

There was no way I could justify spending $10 at dinner when I had a meal plan and other bills to pay.

I sat there in the booth at the restaurant while I saw all of my friends and fellow teammates eating their fun sandwiches and shakes.

I swore to myself that day I wasn’t going to ever put myself in that situation again. It was that day, 7 years ago, when I told myself, “Erik, you are going to become financially literate, and you are going to have savings and be able to afford fun if/when it comes up.”

Since that point, I’ve read many personal finance books and blogs, talked with many personal finance experts, and gotten my financial house in order.

Now, I’m here to share with you some finance tips this month to help you get out of debt, build wealth, and get your financial house in order.

Welcome to Financial Literacy Month!

April is Financial Literacy Month in the United States, and on this site, The Mastermind Within, I’m embracing this and bringing to you targeted information on personal finance, ALL MONTH.

Last week, I gave you a little preview into the type of content you will read this month in my article What Makes You Happiest and Why Money Matters.

In this post, I will be sharing with you why financial literacy matters and why you should care about getting your financial house in order.

The Current Financial Situation of the Average American

Back in 2015, a research team at Wharton published a paper called The Economic Important of Financial Literacy: Theory and Evidence.

In it, they propose and show that there are 3 main questions that can show a person’s level of financial literacy:

  1. Suppose you had $100 in a savings account and the interest rate was 2% per year. After five years, how much do you think you would have in the account if you left the money to grow?
    • More than $102
    • Exactly $102
    • Less than $102
  1. Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After one year, how much would you be able to buy with the money in this account?
    • More than today
    • Exactly the same
    • Less than today
  1. Is this statement True or False? Buying a single company’s stock usually provides a safer return than a stock mutual fund.
    • True
    • False

How did you do?

In the paper, only 34% of participants were able to answer all 3 correct. (The correct answers are more than $102, less than today, and false).

These questions are tricky, but with some financial literacy, these shouldn’t be too tough to answer correctly.

Diving into Some More Statistics

Here are a number of other statistics on personal finance:

All of these numbers lead to the conclusion that on average, Americans don’t understand how to manage their money.

Are people spending more money because they are stressed? Is this the millennial mindset of spend today and push off tomorrow in play? Has depressed income growth and increased inflation crushed any opportunity to save?

I’m not smart enough to answer any of these questions, but I’m feeling inspired to improve my personal situation (and I hope you are too.)

In 2017, I saved nearly 50% of my income and this year, I’m saving at roughly about the same clip. I want you to be able to save money for the future as well.

Let’s change this – it’s time to get our financial houses in order!

Why Financial Literacy is Important

why financial literacy is importantMy money epiphany happened in college as I shared with you in the introduction of this article.

Maybe you’ve had a similar money epiphany, or maybe not.

Unfortunately, it’s a sad place to be.

With bills to pay, mouths to feed, and fun to have, not having the cash or means to do what you want when you want is painful and uncomfortable.

Financial literacy is important because without it, we can get into a lot of trouble with credit card debt, not having an emergency fund, or simply not being able to do what we want with our time!

With financial literacy, we can start to build wealth for the future, get ahead in life, and be able to do whatever we want with our time and money.

I live with an abundance mindset, and as a result, my take on financial literacy will not be so much on frugal tips and how to cut costs. While I believe these are important subjects, I’m naturally frugal and cheap, so I don’t have too much direct experience in this area.

Instead, I will be sharing with you how I’ve escaped my own financial prisons through simple living, increasing my income, tracking my income and expenses, and building wealth month by month.

There is so much money in this world – all you have to go do is just get a little bit of it and you can be wealthy.

Conclusion

Let’s get our financial houses in order together this month. There are certainly areas of improvement that I can work on, and I will be sharing with you what steps I’m taking to get better with my finances…

It will be raw and transparent – I’m a little bit uncomfortable just thinking about sharing with you my information.

But, because we all know that true results and learning comes from the raw details, it is necessary.

I’m very excited to join you on your journey, and I hope this Financial Literacy series this April helps inspire you to crush your debt, build wealth for the future, and become a financial expert!

Readers: have you ever had a money epiphany? Did you say to yourself something like, I’m never going to be in that situation again? What area of personal finance do you need help with?

Erik

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Comments 8

  1. I wish I had my money epiphany, while I was in college. I didn’t have my light blub money moment until I was almost 40. That’s okay. It’s never too late to begin, although I do believe it’s so important to teach financial basic in high school and at home, the sooner you can start the better. I happy to know my three teenagers will know more about money than I did at their age.

    1. Post
      Author

      Well now there’s a great opportunity for your kids to go out and do great things financially. Thanks for stopping by and the share 🙂

  2. Like Brian said, I wish I have my financial epiphany in college. I also wish there were kickball tournaments. That sounds like so much fun.

    I also think financial literacy is important. Even just a little bit is helpful. You don’t need to become an expert or anything like that. But I do think knowing how compounding works, the effects of inflation, and some very basic investing knowledge would be extremely beneficial to everyone.

    Looking forward to your upcoming posts!

    1. Post
      Author

      I agree – really as you learn more, you realize that things are complicated, but not complex – meaning, there’s a lot of simple things to something that make it seem more difficult than it actually is!

      Thanks for stopping by SRGO 🙂

  3. Wow, those statistics mentioned are shocking! Those alone should be enough to be a wake-up call for anyone. My parents instilled in me at a young age the importance of being frugal and I have been all my life! (Wish I could say the same for the rest of my siblings). Looking forward to the financial literacy series and I hope it encourages others!

    1. Post
      Author

      Hey Ben! Thanks for stopping by 🙂

      I’m glad you were able to figure it out at a young age, and I love the name of your site!

  4. We had a money epiphany ~4 years ago, when we went through Dave Ramsey, slayed our debt, saved a ton of money up… and then moved across the country, bought way too much house, hated it there, sold the house at a huge loss, and lost a chunk of our savings. Then came the second epiphany… that we fell into the consumerism trap once again 😉 it’s sneaky – take your eyes off the prize for a second and BOOM – you get sucked back in. I don’t see it happening again, though!

    1. Post
      Author

      Thanks Kate for the comment – I’m really glad you were able to figure things out a few years ago… but like you said, you have to keep your eye on the ball!

      One of my favorite mantras is the concept of consistent daily efforts added up over time result in big success, and with that in mind, the most important piece to anything is sticking with it!

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