The Challenge of Economic Literacy and Its Effects on Personal Finance

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One of the ugly realities of modern-day America is that nearly the majority of citizens – of every age group and most every income bracket – simply don’t have the kind of financial or economic literacy that our modern world demands.

Worst of all, it seems like most Americans aren’t even aware of the fact that they are struggling with economic and financial literacy issues to begin with. They simply don’t know what they don’t know. In fact, according to a recent survey published by the research group Raddon, more than 44% of Americans believe that they are either “very” or “extremely” financially literate – but when given a financial quiz only 6% of that group went on to receive a passing grade.

This is obviously putting a considerable amount of pressure on the lives of millions and it’s not only crippling the near financial future of this current generation but also the far-reaching future of generations to come. Combine that with the horrific impact that financial illiteracy can have when you throw consumer lending and credit issues into the mix and we’re looking at another powder keg that could end up like the Great Recession (or even worse).

Americans Are in Trouble When It Comes to Financial Literacy

The Standard & Poor’s Ratings Services Global Financial Literacy Survey has America ranked as the 14th country in the nation when it comes to financial literacy with a 57% adult financial literacy level; to put that into perspective, this would mean that the US is only slightly more financially literate than the nation of Botswana – a nation that is 1127% smaller than the United States and certainly nowhere near as financially prosperous or as influential as far as the global economy is concerned.

Combine that with the fact that the same survey found that only about 30% of US citizens could answer questions regarding inflation, how interest works, and risk diversification, and we’re looking at a huge problem here with no immediate plans for improvement. On top of this, there’s no real focus on formally educating young people about financial literacy even though it’s going to have an outsized impact on their lives – more so than maybe any other subject they do learn about in school.

In concerns to education, only 1/3 of states throughout America require high school students to take courses in personal finance, and the majority of those schools only require students to take these courses as a portion of a different study or discipline. There’s only five states in the US that require entire semester long and standalone personal finance courses – and unsurprisingly these five states have some of the highest rates of financial literacy in the US today.

Some consumer lending and consumer credit companies know that the general American population isn’t all that savvy when it comes to personal finance; for that reason, they indulge in predatory marketing in order to take advantage of the financial illiteracy of consumers. This makes subprime loans a popular go-to in cases of extreme financial strain for certain undereducated populations.  

With Americans having to take on more financial responsibilities now than ever before, they easily fall prey to such lending tactics because they aren’t understanding their risks and – without proper education – it is easy to imagine that many would feel overwhelmed, trapped, and thrown for a loop when borrowing. This is especially the case in the payday loan, title loan, and cash advance industries. It is important for people to educate themselves not only about the ins-and-outs of these types of financing but also how to take back control of their finances all together.

Taking Control of Your Personal Finances

It is possible to take better control over your personal finances and improve your financial literacy all on your own.

Learn the Basics

For starters, it’s important to (obviously) begin at the beginning.

You’ll want to get a foundational education in the basics of personal finance, not only figuring out essentials like:

  • How to budget
  • How loans and credit cards really work
  • How to calculate interest
  • How to build an emergency fund
  • How to save for retirement
  • How to invest
  • How to handle your taxes

But also figuring out what your specific “financial personality” is like so that you can develop systems and habits that best serve your financial goals and your financial behavior.

Lean on Technology

It’s also a really good idea to lean on the tools and technology available online today in personal-finance communities that can help you jumpstart your financial literacy – without you having to go through the minutiae of traditional personal-finance textbooks and educational courses.

There are many personal finance apps that can quickly get you up to speed, help you with a lot of your financial literacy heavy lifting, and even automate a lot of your personal finance goals and habits that you’d like help instilling.

Build A Budget That Works

At the end of the day, all personal finance begins with building a budget that really works while tracking and accounting for every single dollar that comes into your life as well as every single dollar that goes out. 

Gaining control of your finances can seem daunting and overwhelming at first, but by implementing small changes at a time with the assistance of these tools and advice – slowly but surely – the overhaul of the way you see and think about money will come.

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