It Pays To Be Financially Literate. I Learned Why The Hard Way

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If I’ve learned anything from my parents’ financial constraints, it’s that you need to make wise decisions about money.

We grew up and lived well. We were the typical Southern California family who had a ranch in an expensive Los Angeles suburb with several (leased) cars and a boat.

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That is, until my dad lost his job at a major public corporation for over 20 years. I was 11 years old. We lost our house and moved to Oregon to find cheaper housing. After about three years there, my dad accepted a new job in Southern California and we were all set to go back.


But then, my father lost his (new) job, after putting down the down payment on a California home after we had already sold our Oregon home. Long story short, we spent upwards of $20,000 on summer travel when we were basically homeless. Spending on travel instead of saving took away my family’s financial constraints.

If you do not understand personal finance, you are more likely to experience financial stress. This is because you will be constantly worried about money, and whether you are making the right decisions with your finances.

Financial stress can take a toll on your mental and physical health, and it can also lead to relationship problems. really, a study revealed That 70% of married or cohabiting Americans have had a disagreement about finances with their partner in the past year. It also showed that financial ‘infidelity’ is enough to end about 40% of relationships.


My parents stayed together and are now enjoying life in Florida, but we need to rethink the way we talk about financial literacy. Most of us don’t learn about money until we’re older, if at all. And many times it’s because we’re forced to (you buy a house) or you get into trouble (you’re delinquent on car loan payments).

One reason we are not taught this is because it is not mandatory. Access to financial education in first schools is a huge step forward, but it is only half the battle.

The other half is taking ownership of your education. There are real costs of not being financially literate. You don’t need to know everything, but understanding the basics of interest, investments, and taxes will help you build wealth over time.

Why is access to financial education so important?

Good financial decisions affect almost every area of ​​your life. When you retire, they affect the quality of education you receive, the foods you eat, your access to health care, and more.


If you know nothing about personal finance, you are missing out on opportunities to save money. It doesn’t just mean putting cash in a savings account; It also means knowing how to invest in a 401(k), or how to take advantage of tax-advantaged accounts like an IRA. As a result, you could end up paying thousands of dollars in more taxes than you need to.

In today’s economy, many employers are looking for candidates who have a basic understanding of financial concepts. If you do not have this knowledge, it can be difficult to get a job after graduation. My advice to students is not to neglect accounting or finance classes. In fact, I encourage you to take electives that cover these topics in greater depth.

If you are not familiar with major financial topics, you will also be less prepared for unexpected expenses. On a smaller scale, it could be something like a breakdown in your car. But the problem gets worse as the stakes get higher: What if you lose your job or get sick and have to take some time off work while racking up medical bills? You may not have savings or credit available to cover these unexpected costs. As a result, you could find yourself in debt, or even bankrupt, from these unexpected financial events.


So let’s look at some of the ways in which a basic understanding of personal finance can help you move forward.

avoid debt

One of the most important aspects of personal finance is learning to manage debt. Paying off credit cards, student loans and other types of loans can be difficult if you don’t have a good understanding of interest rates and other financial concepts.

For example, 1% difference in your mortgage rate There can be a substantial financial difference in both your payment and the total amount you pay over time. Or you may decide that a $20,000 car is better for your future finances, even when you qualify for a $40,000 car loan.


Without a full understanding of your overall financial picture, that shiny new car may be too much to resist.

building wealth

Another important aspect of financial education is learning to build wealth over time. For example, if you don’t have a good grasp of financial concepts, it will be difficult to make smart decisions about saving for retirement or investing in a 529 college savings plan, for example.

However, if you understand high-yield savings accounts, how banks work and what does it mean to own a stockYou’ll be able to make sound decisions about how to best save for your (and your family’s) future.


Failure to save properly for your future means financial emergencies can wreak havoc on your life.

make a better investment

If you don’t understand basic financial concepts, it can be difficult to make wise investment choices.

Investing can be intimidating, which deters many people from getting started, but when you know the basics, it can be a lot more approachable.

I know from experience – both good and bad – that a single investment decision can change the outcome of your entire portfolio for years, if not forever. It sounds dramatic, but imagine you put all your money in bitcoin for $61,000, thinking it will rise to $200,000. At the time of writing, it is hovering around $19,000.


This is a dangerous game. However, if you spend time understanding the markets (and, now, unregulated markets) and how they work, you will be able to make sound decisions about which ones are right for you.

achieving financial goals

One of the most important concepts I learned in college was the time value of money.

It’s simple, but when you understand how money can grow rapidly, it can dramatically change how you make financial decisions when you have a long-term vision for the future.

So whether you want to buy a home, retire early or send your kids to college without student loans, take advantage of financial education – through blogs, videos, podcasts and courses, many of them free online. Available – will help you develop an iron-clad plan to reach your personal financial goals as quickly as possible.


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