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(originally published April 2009)
Americans carry more than $2 trillion in consumer debt, with $937 billion of it being tied up in credit cards, according to the Federal Reserve. This month, Americans are encouraged to tackle that debt and commit to improving their money management habits.
April is national Financial Literacy Month, highlighting the importance of establishing and maintaining healthy financial habits. Simply put, financial literacy is a basic understanding of personal finance. It includes concepts like budgeting, saving, investing, insurance, understanding how credit and debit cards work, retirement planning and much more.
Having a basic understanding of these concepts can lead to smarter savers, more responsible consumers and better informed investors. On the other hand, a lack of financial education can have serious consequences. I believe it has even played a significant role in causing our current economic problems. And such irresponsibility certainly continues to be exhibited by both our elected and non-elected officials in Washington. So let’s show them and the world what it means to be financially literate and responsible.
Improving your money management skills and increasing your financial literacy will make you a smarter saver, more responsible consumer and better informed investor. As our country faces record high foreclosure rates and politicians wrongly attempting to use our nation’s “credit card” to spend its way out of this recession and dump our current troubles on our children and grandchildren, it becomes increasingly necessary for Hoosiers to have a solid understanding of their personal finances.
In 2008, the Jump$tart Coalition, a group of organizations dedicated to improving financial literacy, surveyed high school seniors across the country about personal finance concepts. The average score was 48.3 percent, down three percent from 2006. In Indiana, the average was slightly higher at 51 percent, but of the students surveyed, only 4.5 percent scored above a “C” grade.
These numbers are a reminder that we need to place more of an emphasis on financial literacy, not just with students but with adults as well. Maintaining good money management habits and a solid understanding of financial concepts is just as important as being able to read and write. You may or may not have been taught about personal finance in school, but it’s never too late to learn.
One basic financial concept covered in the Jump$tart survey is credit cards. Less than half of the seniors surveyed understood that a credit card holder who only pays the minimum amount each month will pay more in annual finance charges than a card holder who pays their balance in full.
Credit cards are convenient in that they allow you to spend money now without having to pay until later. However, it’s important not to charge more than you can actually afford and to pay your bill in full each month. Most cards have interest rates that increase the total amount you end up paying if you don’t pay your bill on time. Even if you can’t pay in full each month, strive to pay more than the minimum payment to avoid additional fees and accumulating debt.
Another important aspect of financial literacy is knowing how to manage your money. A recent survey by the National Foundation for Credit Counseling revealed that only 39 percent of Americans have and follow a budget. Having a plan for your money can help you pay your bills on time, stay out of debt and save for the future.
Credit card smarts and budgeting are just two of several personal financial concepts that are essential for Hoosiers to understand. Take action today to maintain better money management habits and gain a solid understanding of financial concepts.
For more information on increasing your financial literacy, visit http://www.indianainvestmentwatch.com/.