Financial literacy is the ability to understand how money works in the world: how one manages to earn or make money, how they manage it, and how they invest it to make it grow. When it comes to financial literacy, you never really stop learning, it is a lifelong process requiring both academic and practical components. Studies have shown how poorly educated Americans are when it comes to managing our money.
The earlier we start teaching our children about finances, chances are they will become financially literate adults. For a complete age by age breakdown, of what and how you can teach your children about finances, please feel free to read the articles on this site. Financial literacy begins at home and as early as possible. If we ourselves are not financially literate, then how will we teach our children? Below, is an overview of certain standards adults need to know to with regard to personal finance.
I. Money Management – Recognize how cash flow management and net worth analysis can be used as tools to achieve financial goals.
Identify the components of a budget
Create personalized budget documents
Revise their budgets to reflect current cash flow
Personal Net Worth
Identify the components of a personal net worth statement
Create personalized net worth statements
Understand that their net worth will fluctuate as the values of their assets and liabilities change
Financial Goal Setting
Differentiate between short and long term financial goals
Prioritize their financial goals
Construct a realistic financial goal action plan
Revise their financial goals as life circumstances change
II. Credit – Know how and where to obtain credit, and the implications of using and misusing credit.
Differentiate among the types of credit
Understand which types of credit are better suited for particular purposes than other types
Identify types of financial institutions where credit can be obtained
Understand how the credit application process works
Utilization of Credit
Comprehend the legal implications of using credit
Understand what a credit report is, how to dispute errors in credit reports, and what a consumer’s rights are regarding credit reports
Understand what credit scores mean and the significance of their use in modern life
Recognize what precautions can be taken to prevent identity theft and fraud, and what to do if victimized
III. Debt Management – Recognize how using debt can be a tool in asset building.
Know what tools are available to them to measure their debt load
Determine what their appropriate debt load is
Understand the difference between good debt and bad debt
Recognize the warning signs of excessive consumer debt
Understand options available to assist with excessive debt loads
Evaluate which professionals can assist in dealing with excessive debt issues
IV. Risk Management – Use appropriate risk management strategies to protect assets and quality of life.
Differentiate among the types of insurance products
Understand their insurance needs
Comprehend the implications of being insured or uninsured
Evaluate the effectiveness of risk management tools in protecting against financial loss
Assess their risk tolerance level
Use risk tolerance levels in developing risk management strategies
While this is not an all inclusive list, it is at a minimum, what all adults should know concerning their finances. Stay tuned, later this week I will give you a financial literacy quiz! Be sure to follow me on social
Your Money Make-Up Artist,
Contouring your pockets, lifting your bottom line and highlighting your future