Did you know that April is Financial Literacy Month? Financial Literacy Month is a national campaign designed to bring more financial education to adults and children.
Whether you're a financial wiz or just learning the ropes, there are many ways to improve your financial literacy. Here are four to get you started.
1. Make a Monthly Budget
One of the most important steps in ensuring financial success is creating a monthly budget.1 This may sound simple, but a budget is the foundation to your financial strategy.
Creating a monthly budget doesn't have to be complicated. Here's how to ensure you're setting yourself up for financial success:
- First, calculate your gross monthly income. This could include your salary, investment income, Social Security, child support/alimony, freelance work, or other income sources. Remember to calculate your net income as well, which is how much is left after taxes and other deductions.
- Consider your financial priorities and allocate your budget accordingly. In addition to tracking your regular monthly expenses, you might decide to increase your general savings or earmark money toward a large purchase such as a home or car. The important point is to decide what's important and to make sure your budget reflects those values.
- Finally, create expense categories for where your money is spent and track each and every expense. It's important to differentiate between needs and wants. You need to pay the rent or mortgage payment, but you want a new pair of shoes or a nice dinner out. By tracking your spending, you can determine whether your budget is aligned with your priorities or if you should make adjustments to meet your goals.
2. Check Your Credit Score
If it's been a while since you checked your credit score, now is a great time to see where you stand.2 Your credit score is an important metric when considering your financial health and will play a larger role when you apply for loans, especially mortgages and car loans. If you have a higher credit score, you may qualify for lower-interest debt, which will save you money. The Federal Trade Commission provides information on how to request your free annual credit report.
Reviewing your credit report is important to ensure there aren't any mistakes or incorrect accounts assigned to you. If you notice something on your credit report that doesn't look accurate, such as a loan or credit card you don't remember opening, contact your financial institutions immediately. You can also file a dispute with the credit reporting agencies to report any false information you find.
3. Understand Your Investment Options
As you become more financially literate and feel comfortable talking about finances, you may consider looking into investments that are aligned with your goals.3 There are so many different types of investments,4 and working with a financial advisor 5 can help you understand your options. You should also educate yourself on some of the most common investment types, including:
- Mutual Funds
4. Teaching Children Financial Literacy
For many parents, the idea of having the "money talk" with their kids is a terrifying thought. Although discussing the topic of money with your kids can be uncomfortable, it is a necessary step in their development.6 Few schools teach courses on how to handle money the right way. Without learning money management skills at home, your kids are going to be in for a few nasty surprises when they get older.
Knowing how to save, invest, and spend money is important, but one of the best things you can do for your children is to instill a good work ethic in them by letting them earn money on their own. Whether they earn an allowance for household chores, or working part-time at the movie theater, the willingness to work hard and be rewarded is one of the best financial lessons you can pass on to them. Don’t forget to help kids learn how to make a budget and give them a chance to make mistakes on their own. Do they want to blow this week's money on candy and a cheap toy or save up a few weeks to get something they really want? Of course, some children will still be impulsive and want to spend their funds right away, but better they learn to make mistakes with $10 than $10,000. Better yet, how about you set up a matching fund to encourage them to save. A 50% or 100% match on allowance savings is a small amount when you are creating a lifetime foundation of financial success.
Don't Be Afraid to Ask Questions
Talking about finances can be intimidating, but we all must start somewhere. This Financial Literacy Month, make it a goal to learn one or two new facts about finance and contact an expert who can help. You can turn to financial advisors and financial publications to get your questions answered without feeling naive or silly. There's no such thing as a dumb question when it comes to becoming more financially literate and secure.
Financial literacy doesn't come from making big leaps but rather from taking one step at a time. Pick one of the options above and start yourself on the path to becoming financially savvy.