The month of April is synonymous with many things — spring, taxes, April showers, April Fool’s Day. What it should perhaps be most associated with is financial empowerment, which is no joke. In 2004, the Senate did precisely that when it officially recognized April as National Financial Capability Month. Over ten years later, those poor fiscal habits are still a challenge for many people, from every economic rung on the ladder. As a financial educator and coach, I see the consequences of these bad habits every day. A lack of knowledge about financial matters is the root cause of many poor decisions about credit, saving money, investing, banking, and many other issues that seriously threaten the financial stability and well-being of individuals and their families.
Financial Illiteracy Costs $9,724.83
Common Facts and Fixes
Fix: Whether on your own or with a financial coach, you can identify obstacles and create a plan (and a budget!) to guide you. In many cases, it starts with a look back to where your money is being spent, and then identifying expenses that can be cut, maximizing your income, and taking advantage of income-support benefits. Keeping your goal front and center is crucial.
Fact: 64% of Americans do not have enough cash to handle a $1,000 emergency.
Most people can recall the exact moment when they fell into their debt spiral, and it is very often when a crisis arises. Without savings on hand, you will have to either borrow money from friends and family or use your credit card.
Fix: It’s simple. Start by creating a financial capability fund, and stick to it. One of the major determinants of financial security is the ability to consistently save a portion of your income. Start with whatever amount you can afford – $50 or $5 a month – and increase the contributions as you grow your income and optimize your budget.
Student loan debt passed the $1 trillion mark in 2012 – exceeding both credit card and auto loan debt. If you are not in default, but still struggling to keep up, you have a few options. You might be able to resolve a delinquency with a deferment or forbearance if you qualify, which are ways to temporarily pause monthly payments. You might even qualify for an income-driven repayment plan where your payment will be determined by your discretionary income. For tools and resources, go to http://www.studentloans.gov and https://studentaid.ed.gov/sa/.
Fix: Once your federal student loan is in default, your options are limited. You must either rehabilitate the loan or consolidate it out of default with a new loan. Though servicers are supposed to thoroughly explain your options, you can also speak with an impartial financial counselor or professional. In addition, access the U.S. Department of Education’s special portal developed for students in default at http://www.myeddebt.ed.gov.
Fact: Medical bankruptcy is the number-one cause of personal bankruptcy in the U.S.
Unfortunately, the threat of medical debt doesn’t seem to be subsiding. Americans pay three times more for medical debt than they do for bank and credit-card debt combined. Even with more people covered by some form of insurance, medical debt is still stymieing progress toward achieving financial goals.
Fix: Ensure that any upcoming procedures are covered under your insurance plan If you have a high-deductible insurance plan, make sure that you have at least the amount of the deductible saved in your financial capability fund. You might want to consider low-deductible insurance plans, but be ready to pay more in monthly premiums.
It never hurts to ask for a discount before securing services. In fact, many local, government-funded hospitals offer a sliding scale for services and procedures. For the uninsured, utilize community health centers and other free or low-cost programs and services.
Banking is a crucial pathway to financial inclusion and security. It provides a platform for effectively managing your money. Without access to affordable banking products you are robbed of the benefits of the formal banking system and are often forced into more expensive and less secure alternatives.
Fix: There has been a lot of progress in making bank accounts accessible for low-income Americans. You still need to watch out for fees. Banks are now offering more options and there’s a proliferation of free online bank accounts.
Today is April 1! We still have time to mark the occasion by making ourselves a promise to become more educated about our finances. Personal finances can be tricky and intimidating. With the right resources and support, everyone can move closer to financial stability and achieve goals they set for years to come. Join me over the next 30 day’s for 30 step’s you can take to become financially literate.