Beyond Financial Literacy: What You Need to Win with Your Money

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April is Financial Literacy Month, designed to promote greater financial understanding among children and adults. Yet, more than half of Americans get anxious simply thinking about their finances.

Budgeting Basics for Wealth, Health and Happiness

Why are so many adults stressed out about money? It’s partly because managing money is complex. Understanding the basics of budgeting, saving and even compound interest rates are a good start. But financial literacy isn’t enough — you also need financial capability, financial wellness and financial resilience. Here’s how to get them.

Make Financial Education a Family Value

Managing money used to be relatively simple. Before 2000, many companies offered employee pensions, and fewer financial apps and options existed. As employers shifted to 401(k) plans, the burden of financial planning moved to the employee. Combined with the onslaught of credit and debit cards, financial apps, loan options and growing consumer debt, it’s no surprise that most adults feel anxious about money management.

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Because the economic environment has changed, Americans must challenge long-held assumptions about personal finance. To start, make financial education an integral part of family values. Talk to your partner and children about money principles and best practices. You might have your children manage household spending for the day or encourage a family member to look into an investment idea and explain their reasoning behind their decision.

Create a Financial Wellness Checklist

Financial wellness is the ability to live comfortably today and still have the means to support yourself. Like physical health, financial wellness requires regular maintenance and checkups to ensure you’re on the right path. Here are questions to ask yourself:

Am I saving enough money for emergencies?
Am I spending more than I make?
What is my credit score? How can I improve it?
How much is my retirement savings worth today?
Do I have disability protection if I can’t work?
Is my life insurance coverage enough to provide for my family?
Do I have a will, and is it up to date?

A financial plan isn’t something you “set and forget.” It’s always a good idea to do a financial wellness checkup when you have a change that may affect your finances, such as getting married, having children, changing jobs or receiving an inheritance. But you don’t need a major event to make sure you’re in good financial standing — reviewing your checklist annually can keep you on track and up to date with the current economic environment.

Encourage and Mentor Each Other

Financial literacy is a skill that can help us make better decisions about money. But financial growth and wellness tools are not equally available to everyone, making it difficult for friends, family members or loved ones to flourish financially.

The gap between what we are being taught and what we need to do to achieve financial wellness is even more evident when you consider that most people "don't even know" they don't know how to manage their finances.

Families, friends and communities should encourage and mentor each other to improve financial literacy and wellness. Groups can:

Share information and financial experiences.
Help others better understand how to navigate the economy.
Allow people with similar goals or interests to come together.
Create a safe space to discuss potential solutions for personal financial growth.

Also, don’t discount hiring a financial professional — it isn’t just for the wealthy. Many middle- and low-income people can benefit from financial planning, too. If you choose a CERTIFIED FINANCIAL PLANNER™ professional (CFP®), they have a fiduciary duty to you. Many operate on a fee-only basis, which means decisions they make must be in your best interest and not based on the commission they might earn.

Build Financial Resilience

Being financially literate doesn't make you immune to the economic system that surrounds us. Plenty of financially literate people can have their finances adversely affected by things out of their control — that’s where financial resilience comes into play.

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Financial resilience is the ability to bounce back from unexpected events, like losing your job or being hit with a significant expense. It means you have enough money in a savings account to handle emergencies and that you have access to the information and support you need when something goes wrong. Here are some things you can do to strengthen your financial resilience:

Set financial goals. Make sure they’re realistic but set them high enough that they will motivate you.
Have a budget. Keep track of where your money goes and make sure you don’t overspend in any area.
Build an emergency fund. You want a rainy-day fund that will cover at least six months of living expenses.
Pay off your debt. If you have any high-interest debt — like credit cards or payday loans — pay it off quickly.
Know where your money goes. It's easy to get caught up in day-to-day spending. But keeping tabs on where and how you’re spending can help you stay on track.

While U.S. adults generally understand basic financial concepts, many still find themselves in precarious financial situations. With 78% of U.S. workers living paycheck to paycheck, it’s clear that financial literacy is a problem.

Here's the good news: A little financial planning can go a long way. By taking some small actions now, you can put yourself on the path to being capable and resilient with your finances.

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Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Marguerita M. Cheng is the Chief Executive Officer at Blue Ocean Global Wealth. She is a CFP® professional, a Chartered Retirement Planning Counselor℠ and a Retirement Income Certified Professional. She helps educate the public, policymakers and media about the benefits of competent, ethical financial planning.