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Defining Financial Literacy
Financial literacy can be defined as understanding how to earn, manage, and invest money (FSA). Learning how to earn money doesn’t just mean understanding that you need to get a job, it also entails how to get a job, what jobs pay well, how to get a wellpaying job, what a person can afford on different salaries or with different pay. Learning to manage money safely and responsibly is a valuable skill that many struggle with without access to proper financial education. Managing money involves learning what to save, what to spend, where to store money, and learning to handle credit cards, debit cards, and cash responsibly. Investing money is an opportunity that many people may not learn about without the proper financial education and without that education, they may invest poorly.
Budgeting
One of the more important aspects of financial literacy is budgeting. Learning how to take care of the money you have and ensure you use it properly on necessities is essential. Learning what your budget can handle can inform a lot of major decisions in one’s life. Depending on a person’s income, what they can spend on the necessities like housing, food, healthcare, transportation, and insurance can change what they can afford. Someone using 90% of their income on a really nice apartment will find themselves in trouble when it comes time to go grocery shopping after already paying insurance for the month, nevermind spending money on something fun. Learning how to budget is essential. An easy way in learning how to budget is learning the 50/30/20 rule.
Start by tracking what sources of income you have whether is from a job or an allowance or some othe of income and see what the typical amount save is after a month of income. Then identify what money is spent on as an individual. What do you or can you pay for rent, groceries, utilities, car loans, etc. per month? Then, when that is totalled, compare that to your overall monthly income. Split 50 percent of the income towards paying for whatever you need, then put 30 percent towards what you want, then put the last 20 percent into savings or investments. Depending on how much a person makes, it may be a wiser decision to follow an adjusted version of the rule such as the 60/20/20 rule.
Financial Literacy and SEL
SEL is very vital as it relates to financial literacy since with the proper education in how to handle personal finances responsibly, student’s self-confidence and self-awareness can grow to allow them to feel secure in their financial independence.
Educating students in financial literacy and providing them with vital information and skills to manage their finances responsibly can save many students from worrying about their future. According to the National Education Association or the NEA, a study was done in 2018 that surveyed 1,000 13 – 18-year-olds about their knowledge of personal finance. Here is what the study found.
“Ninety-five percent of respondents agreed that taking a personal finance class during high school would be valuable. When asked about future personal financial concerns, 54 percent of respondents indicated paying for college, followed by 52 percent not being able to find a well-paying job, 49 percent not being able to afford a home, 43 percent not having the necessary skills to manage money, and 42 percent not being able to save money for an emergency,” (NEA).
As a result of the study, it can be seen the worries of students for their future as a result of poor personal finance education. There is a majority percentage worrying about their finances and many worries about their futures. With more financial education and social emotional learning, available to students, their confidence in themselves and their future would be sure to improve.
References:
Financial Literacy | Library | Knowledge Center. fsapartners.ed.gov/knowledge-center/library/functional-area/Financial%20Literacy.
Financial Literacy and Economic Inequality | NEA. www.nea.org/resource-library/financial-literacy-economic-inequality.
“How to Create a Budget.” Citizens, www.citizensbank.com/learning/how-to-create-a-budget.aspx.