I’ll bet that most of you don’t know that April is officially National Financial Literacy Month #finlitmonth. In fact, almost a decade ago in 2003, the U.S. Senate designated April Financial Literacy for youth Month. In March of 2004, the Senate passed Resolution 316 that officially recognized April as National Financial Literacy Month. I almost thought for a minute that we had run out of months since every month seems to have designated some cause for us to heighten our sense to for the next 30 days. It’s ironic because I’ve been doing this for almost 22 years and I can tell you that I’m still constantly learning new strategies and techniques around planning for money. Many Americans are highly educated but still not well informed when it comes to their money.
Here are five smart money moves to focus on if you want to become more financially literate.
- Mutual Funds or Index Funds– Many of the large mutual funds companies run advertisements on television or in print about how their mutual funds are 4 star or 5 star mutual funds. It’s almost like you are reading a Yelp or Trip Advisor rating and whatever investments have a bunch of gold stars you should buy them. 90 percent of U.S. mid-cap funds and 95 percent of investment-grade long fixed income funds failed to beat their index for the five years ending December 2012. (source: huffington post). This means you should really investigate the idea of exchange traded funds or index funds versus actively manage funds and see what is really better for your portfolio.
- Your Bills– Just because your online bill pay system pings you that a new bill has come from your cable, gas, or credit card company doesn’t mean you should immediately go to pay the bill today. Lots of people have moved to online bill pay to get rid of the nuisance of paper bills coming all the time. However, more and more people have stopped reading their bills and the detail that ensues throughout the statement. Thus, we have more uneducated Americans around how companies are increasing costs and where they are increasing costs within their monthly bills.
- Fees– Whether it is your bank, your credit card company, or your financial services provider, Americans need to become more literate around fees. Recently, there was massive changes made to 401(k)’s so the fees being charged would become more transparent. However, if you ask 10 normal employees who contribute to their 401(k), they could not quickly tell you the overall fees they are paying within their 401(k) every year. Just as most people cannot tell you the Annual Percentage Rate on their credit card.
- Our Emotions– It’s been openly discussed for many years that money won’t buy happiness. It’s something we seem to become more illiterate about every single day then we do educated. The pressures of society have continued to encourage us to buy a bigger house, a nicer car, and more of the mass affluent brand names from clothes to technology to dining. We need to become more literate about whether these purchases make us happy long term or do these purchases act as a crack type high that wears off a week later when we start to relish making the next purchase. Since most of us don’t buy our purchases with cash, the availability of credit has made it even easier to buy fancy items which fool our emotions into thinking we are happy.
- Balancing Our Checkbooks– We have said for years as a firm that you should run your family like a business. Although many Americans still carry a checkbook with them, hardly any of them actually go through the process of balancing and reconciling their checkbook on a monthly basis. When there are discrepancies within the checkbook, sadly most people go to the ATM and have a machine tell them what their balance is and adjust their checkbook accordingly without asking any questions. Try reconciling for three months and see what you learn.
Financial literacy refers to the set of skills and knowledge that allows an individual to make informed and effective decisions with all of their financial resources. What we do know that most of will have a finite amount of income and a finite amount of financial resources. If that is true,then the people that become more literate will likely do better than the ones who stay uneducated. I don’t if a month is enough to really get literate, but try one or two of these smart money moves here in #finlitmonth!
CFP®, AAMS®, AWMA®, CRPC®, CMFC®, CRPS®
Editor in Chief of Your Smart Money Moves
Co-CEO and Founder of oXYGen Financial, Inc – The Leaders in Gen X & Y Financial Advice and Services
Ted Jenkin is one of the foremost knowledgeable professionals in giving financial advice to the X and Y Generation.
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