As the coronavirus pandemic changes our view on normalcy amidst global economies, the ramifications of inadequate financial knowledge may display a population that is underprepared to face unprecedented financial challenges. Nearly three months ago, we were seeing a thriving economy, presidential debates, NBA teams spearing for a playoff position, and more, but all of that came to an unexpected end when the COVID-19 pandemic took hold of our day-to-day lives. Now is all the more reason why our societies should refresh on financial literacy skills to navigate uncharted economic uncertainty.
According to Investopedia, financial literacy is the ability to understand and properly apply financial management skills. Characteristics of financial literacy include but are not limited to properly managing debt, savings goals, accurately calculating interest, and understanding compounding interest. To many, financial literacy is always important, but during a time of widespread economic ambiguity, it can be important to almost everyone.
It should be noted that a lack of financial literacy does not discriminate against income levels. Even those with higher salaries are subject to inadequate financial education. As stated by CareerBuilder, of those making over $100,000, nearly one in every ten Americans live paycheck to paycheck. The National Financial Educators Council found that lack of financial illiteracy cost the average American, regardless of income, $1,279 in 2019. For comparison, that is more than many received from recent stimulus checks from Congress!
Why is it important to touch-up on your basic financial knowledge during a pandemic?
- Financial literacy can make people habitual budgeters who are willing to save for their goals and potentially provide a cushion during a pandemic.
- Financially literate people better understand and research financial assistance programs that federal, state, and local governments are now rolling out in response to the pandemic.
- If needed, understanding the importance of prioritizing the liquidating of assets can benefit your long-term planning. Giving thought to and reviewing potential tax consequences as well as considerations of liquidating liquid versus illiquid assets can be important in preserving your overall net worth.
- According to the NerdWallet, organizations that implement effective financial wellness programs have shown employees perform better if they are not distracted by the stress of personal financial issues.
What steps can you take to make sure you are "in the know"?
- Consider taking an online class to better round off your current understanding of financial matters. Many resources are offering discounted pricing during the current pandemic. Popular resources include the likes of MasterClass, Udemy, and Dave Ramsey.
- Educate yourself on the importance of your credit score. Improving your current credit worthiness may significantly increase your ability to access credit if needed. Our previous blog on this matter may be of assistance.
- Organization, while not solely pertaining to financial matters, is especially important during emergency situations. Knowing where your financial records are and what they mean can help improve your efficiency in financial decision making.
- For business owners, taking the time to educate your employees on financial matters may significantly improve productivity and retention.
At Detterbeck Wealth Management, continuing education is important to all of our team members and required for many of our designations. We consider ourselves to be life-long learners. For example, I recently completed the College for Financial Planning's Chartered Sustainable, Responsible, and Impact Investing Counselor designation, CSRIC(TM), to be more adept in answering questions and providing input on this growing field. To learn more on this designation, please visit: https://www.cffpdesignations.com/Designation/CSRIC
In addition to being life-long learners, we also consider ourselves to be educators for all of our clients. We hold this role to the highest of standards. Educating our clients, particularly during these trying times, is critical. While we may not be meeting with you in person just yet, we are always a phone call/video call away to assist in your current and future financial considerations.