In 2003 the United States Congress showed its support for the idea of a financial literacy month when Senate Resolution 48 and House Resolution 127 asked President George W. Bush to declare April Financial Literacy for Youth Month. At that time, governors of eight states had already named the month of April as such. April 2004 was named National Financial Literacy Month by the passing of Senate Resolution 316 with unanimous consent.
In April 2005, the United States House of Representatives passed a bill supporting the goals and ideals of Financial Literacy Month for April 2005. This bill, and the resolution passed by the Senate, called on President Bush to issue a proclamation calling on Federal Government, States, localities, schools, nonprofit organizations, business, and the people of the United States to observe the month with appropriate programs and activities. During his time in office President Bush did not issue a proclamation, however President Obama proclaimed April as National Literacy Month in at least two years of his time in office. Now that you’ve been informed, the question is, are you financially literate?
What is Financial Literacy
The answer to that question is very interesting depending on who you ask. Some have sought to answer that question by asking a series of other questions. They determine financial literacy with questions like, are you living paycheck to paycheck? My response would be, as a result of Covid-19 how many people are not living paycheck to paycheck?
I, on the other hand, describe financial literacy as the foundation of your relationship with money. It’s your ability to effectively use various financial tools and skills to maximize your financial stewardship. It encompasses several areas such as budgeting, investing, saving and spending to name a few.
Are You Literate?
In 2018 a FINRA survey noted that less than one third of adults understood three basic financial literacy topics. While most of us believe we are financially literate and have control of our finances, the FINRA study revealed that almost 60 percent of us cannot complete two simple interest rate and inflation calculations and almost 40 percent cannot compound interest on debt. I would suggest this is one of the metrics used to determine if you are financially literate.
Here’s the Plan
Since April is financial literacy month, for the next few articles I will focus on areas where you as the reader can grow in your financial literacy. For each person those areas may be different, but let’s start with a conversation in those areas. Now is not the time to be ashamed of your finances and the mistakes you have made.
This is an invitation and opportunity to get it right and make corrections. If you don’t know how to compute simple interest let’s talk about it and provide the formula for such calculation. If you do not know how to calculate compound interest, let’s have that conversation and help you get there.
The plan does not end with you but it does begin with you! Should you choose to embrace this challenge and assignment for the rest of April, you will now be required to have conversations this week with you children, friends and crew about compound interest. Make sure they know how it is calculated and if they do not then teach them how it works, especially in relation to debt, payday loans, car loans, credit cards and mortgages. This week is all about the basics of compound interest in financial literacy.
Send an email to Ruthven@give2getrich.com and share some area of financial literacy in which you wish to learn more. We may not get to all of your questions this April, but I hope to increase your financial literacy education as we celebrate the month this year.