The United States has the world's largest economy, yet according to a 2016 report by Standard & Poor's, America’s financial literacy level is only slightly higher than that of Botswana, whose economy is among the smallest in the world. According to S&P’s findings, only slightly more than half of U.S. adults are financially literate.
Impact of financial illiteracy
Financial literacy refers to the skills and knowledge that allow people to effectively manage their finances and make smart decisions with their money. The sad truth is that many Americans are not confident in their money management skills. A lack of financial literacy can not only impact a person’s stress levels regarding money, but it can contribute to many social issues in America as well, including poverty, unemployment, and wealth inequality. Not having sound financial skills also means that many Americans don’t fully understand the implications of their financial choices which can lead to long-lasting credit damage that can be difficult to come back from.
This lack of financial education makes Americans particularly vulnerable during times of crisis, such as the current COVID-19 pandemic. In April 2020, the national unemployment rate skyrocketed to 14.7%; up from just 4.4% the month before. While the unemployment rate has come down a bit since then (resting at 10.2% in July 2020), the fact of the matter is that more than 16 million Americans are still out of work. This is especially troubling given that half of survey respondents in a recent Charles Schwab Financial Literacy Survey said they'd have trouble covering an emergency expense of less than $1,000.
Steps to take
The good news is that there are several steps that consumers can take to help protect themselves and their families in times of financial uncertainty and crisis. Here are 6 things you can do to start bettering your finances:
Impact of financial illiteracy
Financial literacy refers to the skills and knowledge that allow people to effectively manage their finances and make smart decisions with their money. The sad truth is that many Americans are not confident in their money management skills. A lack of financial literacy can not only impact a person’s stress levels regarding money, but it can contribute to many social issues in America as well, including poverty, unemployment, and wealth inequality. Not having sound financial skills also means that many Americans don’t fully understand the implications of their financial choices which can lead to long-lasting credit damage that can be difficult to come back from.
This lack of financial education makes Americans particularly vulnerable during times of crisis, such as the current COVID-19 pandemic. In April 2020, the national unemployment rate skyrocketed to 14.7%; up from just 4.4% the month before. While the unemployment rate has come down a bit since then (resting at 10.2% in July 2020), the fact of the matter is that more than 16 million Americans are still out of work. This is especially troubling given that half of survey respondents in a recent Charles Schwab Financial Literacy Survey said they'd have trouble covering an emergency expense of less than $1,000.
Steps to take
The good news is that there are several steps that consumers can take to help protect themselves and their families in times of financial uncertainty and crisis. Here are 6 things you can do to start bettering your finances:
- Start saving. It is recommended that consumers have at least three to six months of essential expenses saved up, yet a large number of Americans don’t have nearly that amount in their savings accounts. One of the best things you can start doing to secure your financial future is to save at least a little bit of money every month. Even if it feels like your budget is too tight for saving, there are many things you can do to help free up some cash on a regular basis. The trick is to stay committed to your savings goals and to not make excuses.
- Be the best employee you can be. If you have a job, protect it. Perform at the highest level possible to avoid being laid-off. If you sense you'll be laid-off anyway, be sure you know how to file for unemployment, request a deferment for your mortgage or student loans, and negotiate smaller credit card payments.
- Control your spending. Make a budget and stick to it. If you already have a budget, consider cutting it back to bare-bones, then adding back only those expenses that are most important to you. Pay down credit cards as much as you can. Ask a second person you trust before making a major purchase. Avoid new debt if possible.
- Ask for help. If the crisis has made paying your bills difficult, be proactive in seeking help from lenders and government agencies. Many lenders are trying to work with customers. Ignoring debt or hiding from creditors will only make the situation worse.
- Create a financial plan. It’s important to set specific financial goals, such as paying debt, building savings, planning for retirement, or protecting the wealth you've already accumulated. Once you have established what you’re working toward, you can create a solid plan for achieving your financial goals.
- Focus on what you can control. Remember that you can control how much you spend, save, and borrow. While you can't control the COVID-19 pandemic, or what happens with the rest of the economy, you do have power over your own financial picture. In times of uncertainty like these, you may be forced to make changes to your normal financial routine. Whether that means cutting costs, picking up a side-job, or getting your debt under control, it’s important to remember that you are in the driver’s seat.