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Houston we have a problem! Hey Middle Child Money Crew. Today we are diving into a systemic problem across America. Spoiler alert… The biggest hurdle in personal finance in 2024 is Financial Literacy. The basics are not there.
The 2024 Financial Literacy Crisis in America report paints a grim picture. According to Yahoo Finance 88% of U.S. adults didn’t feel prepared to handle money after college. This lack of financial education has lasting impacts on people’s lives. They also mentioned that only 17% took a personal finance class in high school. 75% say they’d have a better financial start with such a class. Financial stress runs rampant, with worries over savings, bills, and job security. CNBC make the argument that improving financial literacy is crucial for economic recovery and well-being.
Diving Deeper into the Problem
According to Savology.com, 76% of millennials are not financially literate. Financial literacy is crucial for making sound financial decisions and developing good habits like budgeting, saving, managing debt, and investing for retirement.
The lack of financial literacy leads to poor financial habits and decisions. Many people neglect to put in the time and effort to improve their financial knowledge. This is a big reason why I started the Middle Child Money Crew. It is alway more fun in learning in community, around others that are facing the same problems.
Savology also says that 95% of millennials are saving less than the recommended amount for their retirement. This smells of disaster in 30-40 years.
Safe1.org estimates that 54% of Americans are living paycheck to paycheck. They also say that 61% of Americans do not have $1,000 in an emergency fund to help with an emergency.
One of the primary factors in the status of the Millenial financial crisis is excessive debt, which includes students loans and credit card debt. This is dragging down opportunity for financial growth.
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The Problem is Growing Legs
The lack of financial education has significantly impacted the workforce in several ways. The problem is not just personal the impacts of this problem are trickling through society in various ways. Financial Literacy is a huge problem. Take a look at just a few.
Decreased Productivity at Work
According to MyWage.com’s Article 59% of UK employees say current financial worries prevent them from performing their best at work. I would suspect that this would ring true in America as well. Financial stress acts as a major distraction, reducing focus and productivity.
The Bamum Financial Group estimates that poor financial literacy leads to stress over managing finances, debt, bills, and lack of savings. This mental burden impacts employees’ ability to concentrate on their jobs.
Higher Absenteeism at Work
Employees with poor financial management skills are more likely to have higher absenteeism rates. The inability to handle financial emergencies or problems leads to more missed work days. Financial stress has a ripple effect on employees’ lives, resulting in higher absenteeism when they cannot cope with money issues.
Lower Employee Retention Rates at Work
Companies that provide financial education see improved employee retention rates. Employees feel valued when employers invest in their financial wellbeing. The Society for Human Resource Management reports employers feel more responsible for employee financial wellness to retain talent.
Increased Employer Costs
Financially stressed employees are more likely to take out 401(k) loans, pay advances, and make hardship withdrawals. This increases administrative costs for employers.
Lack of retirement planning by employees can lead to delayed retirements, increasing costs for employers.
Fostering a financially literate workforce through education programs is crucial for improving productivity, reducing absenteeism and turnover, and minimizing employer costs related to financial stress. Employers who invest in their employees’ financial literacy can reap significant benefits.
4 Steps To Becoming Financial Literacy
1. Learn how to budget and track expenses
Create a budget by listing your income sources and all expenses (fixed and variable). Track where your money is going each month by reviewing bills, receipts, and bank statements. Budgeting helps you control spending, pay bills on time, and identify areas to cut back.
If you need more help on this Middle Child Money has written extensively on this. Here are a few of our Favorite posts about Budgeting.
2. Understand credit and build a good credit score
A good credit score has numerous benefits. It not only impacts loan approval and interest rates, but also impacts your ability to rent an apartment, get a job, or obtain insurance. Moreover, a high score signals responsible credit usage, which is highly valued by lenders and other institutions.
If you want to build credit, there are several steps you can take. First, become an authorized user on a credit card of someone with a good credit history, such as a parent or a close relative. This can give you a head start in establishing credit because the positive account information will be reported on your credit report too.
After turning 18, you might also consider applying for a secured credit card (be sure you know what everything means on that statement and application), which requires a deposit upfront but can help you establish a credit record if you use it responsibly. Make sure to pay all your bills on time, every time, as late payments can negatively affect your credit score and stay on your credit report for up to 7 years.
It’s also wise to keep your balances low relative to your credit limits. This is known as your credit utilization rate and should ideally be below 30% of your available credit. Keeping your balances low and paying your bills on time shows that you are using credit responsibly and can help you build a strong credit foundation.
3. Start saving and investing for the future
Saving and investing are vital for long-term financial security. Without them, achieving major goals becomes nearly impossible. The path to a thriving financial future relies heavily on these practices.
Saving provides a safety net for unexpected expenses. An emergency fund prevents going into debt for car repairs, medical bills, etc. It also allows you to take calculated risks like changing jobs. Consistent saving is key to affording large purchases without loans.
Investing allows your money to grow over time. The earlier you start, the more your investments can compound. Investing in tax-advantaged retirement accounts like 401(k)s is crucial. It ensures you have enough saved when you stop working. Other investments like stocks, bonds, real estate build wealth too. A diversified portfolio reduces risk while maximizing growth potential.
Saving and investing require discipline, but are essential habits. They provide financial flexibility, security, and the ability to reach goals. Without prioritizing these practices, the road to a thriving financial life is blocked.
4. Never Stop Learning
Financial literacy is a vital skill that requires a continual process of learning in order to navigate the changes in the financial landscape. Simply put, staying stagnant can be detrimental to your overall understanding of personal finance. It’s important to keep up-to-date with the latest developments and innovations in financial products, regulations, and technologies. By doing so, you can take advantage of new opportunities and avoid costly mistakes.
Continual learning provides you with relevant knowledge at each stage of your life, allowing you to make informed financial decisions based on the latest insights and trends. It is an invaluable asset in the pursuit of sustainable wealth growth. To that end, an open mindset and commitment to lifelong learning are essential.
Without a dedication to continual learning, stagnation leads to missed opportunities and potential pitfalls. It is therefore important to prioritize financial literacy as a lifelong pursuit, as it can yield tremendous benefits in building and preserving wealth. By stretching your knowledge and keeping it relevant, you will be able to adapt to changing financial circumstances and enjoy greater financial stability throughout all stages of your life.
Disclaimer
The content provided on Middle Child Money is for informational and entertainment purposes only. We are not licensed financial advisors, and the information shared on this blog should not be considered professional financial advice. We encourage all readers to consult with a licensed financial professional to discuss their individual financial situations and needs. The opinions expressed on this blog are solely those of the author, Nate Bradley, and do not reflect the views of any affiliated organizations. Middle Child Money cannot be held liable for any actions taken based on the information provided on this site.
