Unfortunately, the majority of people today are not financially literate. One key problem is that schools don’t teach people how to balance a budget, the importance of saving, how to avoid debt and how to handle their taxes. This means that when people enter the workforce they are largely confused. Financial literacy appears to be an education gap that has fallen between the parents and the school. Both thought the other was taking care of it, so neither did.
This has led to the majority of people now living from paycheck to paycheck with zero savings. One study showed that a quarter of people never manage to save any money from month to month and almost 75% of people are in some form of debt. These shocking figures simply prove that people are lost when it comes to finances.
To be financially literate means being able to understand your money to a sophisticated level. If you are able to do the following items, then you can count yourself as one of the 20% of people today who are financially literate.
- Create a monthly budget
- Live debt-free
- Have an emergency fund to cover your expenses in the case of some unforeseen issue
- Understand insurance
- Understand compound interest
- Understand investment
If you said yes to all to of these items then you are financially literate. If you have a basic understanding of even some of these points then you are still doing well and are above average. However, if these items sound like a different language to you, then you need to start investing more time in your finances and understanding.
The truth is that financial freedom is a possibility for almost everyone earning a medium-income or higher. If you are living paycheck to paycheck then you are likely just managing your money incorrectly. Start today and put your finances back on track.