Fed Chairman Puts Spotlight On Financial Education
Education is a topic that many Americans emphasize, as evidenced by the number of parents who enroll their children in private institutions from pre-school onward to the millions of Americans who attend obtain undergraduate and postgraduate degrees. Many people view education as a key to a bright and opportunistic future. With all the emphasis on education, however, fewer individuals place the same priority on Americans' financial education.
The Great Recession highlighted many individuals' shortcomings when it came to understanding the financial and credit concepts that most heavily affected their finances, such as mortgages, credit card debt and their credit reports and scores. However, more government agencies are now calling for a renewed focus on financial literacy and education as they may be the paths to both individual well-being and national economic recovery.
In a recent speech, Federal Reserve Chairman Ben Bernanke noted that teaching young children and adults about financial concepts allows them to make smarter financial decisions over the course of their lives, especially those relating to mortgages, auto and student loans and credit lines.
"As the recent financial crisis illustrates, consumers who can make informed decisions about financial products and services not only serve their own best interests, but, collectively, they also help promote broader economic stability," Bernanke said. "Smart financial planning – such as budgeting, saving for emergencies, and preparing for retirement – can help households enjoy better lives while weathering financial shocks. Financial education can play a key role in getting to these outcomes."
Paving The Path To Financial Literacy
There are several actions consumers themselves can take to become more informed about their own finances and whether they are making practical decisions. For example, establishing a budget is one of the first tasks professionals encourage adults to take on because it allows them to know where they stand financially and get a better look at where their money is going.
The results of the 2012 Consumer Financial Literacy survey from the National Federal of Credit Counseling reveals 56 percent do not have a budget and 22 percent do not know where their money goes each month. By establishing a money management plan, you may realize that you're overspending on unnecessary categories, such as dining out, expensive cable packages or retail spending. Curbing these types of excesses may allow you to devote more money to savings, paying down debt or putting funds toward a specific goal.
In addition to knowing where your money is going, it's equally important to understand all your financial options. Speaking with a banking representative about your financial goals may be a good first step because most financial institutions retain advisors that can give you a rundown of different savings vehicles and how to better manage your money.
In addition, personal finance websites and financial institutions may also offer webinars and tutorials, web resources, budgeting spreadsheets, tips and advice and other guidance that allows you to learn more about mortgages, loans, credit and smart money management tactics. These can be helpful places to examine when you're getting ready for a life change, planning for retirement or simply trying to improve your financial and credit standing.
"Other than world hunger, financial literacy is probably the greatest topic of our time," Paul Auslander, president of the Financial Planning Association, told Investment News in a recent column. "People making good money are making foolish decisions about money because they are financially illiterate."
For these reasons, taking a proactive approach to educating yourself on different financial topics can give you the skills and know-how to start making smarter decisions. Further, the skills you obtain may be passed on to children and family members in the future.