Financial literacy is one of the key components to achieving a successful financial life. Some people have the right resources and opportunities but their lack of knowledge only led to the loss of what could have been a good shot at personal wealth. Financial literacy and opportunity go hand in hand in ensuring proper finance management.
Having the right tools to manage your finances normally leads to a path of financial freedom as well. Debt is often the product of uninformed financial decisions that can be compounded by unfortunate life circumstances. But focusing on those that can be addressed is an important step in getting out of debt and onto a road of financial independence.
Financial literacy in the country
Money News recently rated the states in the country in terms of financial literacy. New Hampshire took the top spot by ranking number one followed closely by Utah and Virginia. New Jersey and Minnesota rounds off the top five in the study. The study shows that these five states are conscious and serious about proper financial management.
The study used metrics to measure education and knowledge as well as daily habits and planning as well. The study also revealed rankings of different states according to characteristic:
Dropout rate for high school
Education at any level is important for an individual. It works with the character and determination of a person to succeed in life. It is not the only determining factor in success but it is a very crucial tool in reaching greater heights. There are also some schools teaching your kids about finances.
The study showed that New Hampshire has the lowest dropout rate of 1.2%. This is a good factor leading in why the state is leading the pack in financial literacy. It is also a good sign of a healthy educational system.
Saving up for a rainy day is important in getting over unforeseen challenges life will throw our way. Medical emergencies or losing a job could be some of the events our emergency funds can address. Without it, you can get deeper and deeper in debt as your only option is to get a loan to have the money to survive.
Arizona tops the list at 53%. More than half its population knows the value of a rainy day fund. They build on it and put it aside hoping they never get into a situation where they need to use it. But if they do, then they have something to pull out. Indiana is at the bottom of the list at 33%.
Bank accounts are essential tools in safe keeping hard earned money. Better than just letting the funds collect dust at home, they earn interest in the bank. And you also almost the same type of access to your money in the bank just as you would put it in a drawer.
New Hampshire tops the list again with just 99.1% of residents having a bank account. This means they are well on their way to ensuring their funds are kept safe. It is also important for parents to tell their kids about their finances in case of emergencies, they know the financial standing of the family. Mississippi is rounded up the list with 15.1% of residents not having a bank account.
Sustainable spending habits
Making good use of the money you earn is a good sign of sound financial literacy. Maryland residents know about this as they top the list at 14%. Most of them know the value of a dollar and use them wisely. Mississippi is again at last place with only 22% of its population guarding their spending habits. Proper spending habits can also make you confident about personal finances.
This is a great gauge on the risk profile of the state. The lower the number, the lesser the chances of default and the better the credit score. It also echoes the health of the economy in a particular area. Excluding bank rates, New Jersey tops the list with only 16% and Oklahoma is at the bottom with 40%.
Financial literacy occurs on two levels. Looking at the macro-perspective, consumers need to understand the policies that are formed and how it relates to their finances. They need to be updated with rulings and recent news that could affect their lives. On a micro level, consumers need to be aware of personal financial traits and characteristics. This can include saving, spending, and even consumption. The understanding that encompasses these two levels can greatly contribute to financial literacy.
Financial literacy month
April was financial literacy month and it was a great time to remind us that at the end of the day, we are all responsible in our financial standing. It also made us realize the importance of saving and what it brings to our future. In light of this, MNFIC.org came out with some points on how to create our map to financial literacy.
- Commit to financial change. Financial literacy starts with a commitment. It starts with the individual wanting to change and a commitment to stick to a lifestyle of sound financial decisions.
- Check your financial standing. Doing an audit of your situation financially can get you started on the right track. It is important to know where you are coming from in order to prepare for where you want to be. Financial literacy starts with an honest assessment of one’s self.
- Credit report clean-up. Making sure that your credit report is accurate will help you open numerous financial opportunities down the line. Check the accuracy of your report and if there are any problem, report them right away so they can be fixed.
- Priority setting. It is crucial to lay out your priorities to reach your goal. Knowing where to start with and what to aim for first can guide you in the right direction. This can also help remind you of what financial journey you are on.
- Set goals. Classifying your goals as short, medium and long term can help you prioritize even more. This can give you a clear direction on where to start and when you should end on a specific goal. It allows as well to put a time frame on your goals to push you even more.
- Debt payments. It is quite a challenge to pursue financial dreams with a ton of debt breathing down your neck every day. Paying down and paying off your debt should be on top of your list. Clearing up income payments that go to debt payments and channeling them over to your goals will help achieve them faster.
- Emergency fund. As with everything, we need to expect things will not always turn out the way we want. There will be bumps along the way that could steer us off-course. The way to remedy this is to prepare for the unexpected. Build an emergency fund to help you through rough times and prevent them from getting rougher.
- Retirement fund. You are only young once so save up for those winter days. Tackling retirement early will help you retire when you want not when you need to.
- Track your expenses. Keeping tabs on where your money is spent is a good practice on financial literacy. It is easy to remember the big ticket items but those small repetitive ones are quite hard to tally up. By tracking them, you will see just how much you are spending on unnecessary items and can help you save up precious dollars.