Financial literacy is the ability to understand personal financial decisions and the implications for one’s finances.
The paradox of our increasingly complex financial system is that more citizens are less financially literate than ever before. This is a huge problem for American citizens, because it means many of them don’t fully understand the implications of their financial decisions. For example, without a solid understanding of compound interest and inflation, consumers are unable to make informed decisions about critical life decisions such as saving for retirement, purchasing a house, and ensuring their children’s future through education.
The good news is that financial literacy can be improved. Here are three strategies Mark Hauser, a private equity expert, suggests to improve financial literacy:
- Consult with Financial Experts
Financial experts have a wealth of experience in the financial system and are often better positioned to make financial decisions. Experts understand how to read complicated financial documents and they can assess the best financial solutions for customers.
Mark Hauser suggests this because experts are also more attuned to a consumer’s needs because they can gauge a customer’s financial situation, including understanding what types of investments are right for the consumer.
- Have a Budget
Even though having a budget can be a tedious task, this is still a basic financial skill that everyone should learn. If a consumer knows what their monthly expenses are, they can better understand the consequences of their decisions.
Without knowing where your money goes, it’s difficult to make good decisions, says Mark Hauser. Knowing each month’s total expenditures enables consumers to manage their finances effectively and means they can more easily identify where they qualify for financial aid in college and retirement savings programs.
- Tune Into Informative Financial Podcasts
While listening to a financial podcast doesn’t replace consulting with a financial expert, it enables consumers to learn about investing and financial literacy in an entertaining and informative way. This can be particularly helpful for people who don’t know where to start when it comes to improving their finances and want an informal way to learn more.