Money Monday: Three Signs That You Are Financially Literate

Financial Leverage Balance And Inflation Insurance Concept
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The United States Congress in 2003 engaged the idea of establishing April as Financial Literacy for Youth Month through Resolution 48 and House Resolution 127. However, in 2004 Senate Resolution 316 passed by unanimous consent the name change and making April Financial Literacy Month.

If one of the goals of designating April as financial literacy month is to make us more aware and educated about financial matters; then the question may be asked; are you smarter or better now than you were one year ago in your finances? Does your behavior reflect that you are acting financially literate ? Here is a list of suggested things that financially literate people do.

  • Credit Cards: Financially literate people learn to negotiate with their credit card companies. Did you know that since you obtained your credit card you can call them and ask for a reduction on the APR ( Annual Percentage Rate ) or rate of interest they are charging you on your card when you purchase an item or services? Yes you can always call the company and negotiate a lower rate especially if you have not been carrying forward balances each month. If you have not been carrying forward balance, one strategy you can use when you call the company is to let them know that you are receiving offers from new credit card companies or competitors and that you may consider changing providers. You can also argue that you have been with them for a very long time and would not want to change providers. Further, if you have not been able to pay off your balances and have been carrying them forward, you can still request a lowering of your interest rate. You can share that as part of your attempt to improve your credit score, you are seeking a lower rate as you become a better steward and manager in reaching your goals.
  • Banking: Financially literate people would consider retaining some of their savings in an online bank as opposed to a traditional bank. Most people seem to keep both their checking and saving accounts in the same bank or traditional institutions. However, you should note that online banks generally pay higher rates of interest on both savings and checking accounts. The idea here is not to leave your traditional bank and switch entirely to online institutions. What has been suggested is that you can retain your checking account at a traditional institution as not disrupt your monthly automatic bill paying system; while still obtaining a higher rate on your savings account at an online bank. Let me suggest to you that the question of using an online bank for savings is not simply a matter of obtaining a higher rate of interest but a question of inflation. Are you earning interest on your savings equal to above the rate of inflation? If you are leaving a traditional bank and using an online bank, just be sure that the fundamentals are in place. For example, ensure that the online bank is FDIC insured, can you deposit cash or are they part of an ATM network. Most people who are financially literate have different sources or streams of income and therefore keep their money in different financial institutions.
  • Good Debt, Bad Debt & Assets: An empirical sign that you are financially literate is that you understand the differences between good debt, bad debt and and assets. Assets are items that usually appreciate in value. However in order to acquire an asset sometimes you might incur debt. Historically, these are items such as property or vehicles. But a key factor to evaluate is whether the debt is tied to an asset that will appreciate and provide value in the long term. Also worth consideration is are there any rules or legal constraints associated with the debt in acquiring the asset. In other words financial literacy doesn’t only consider numbers but other factors in making good financial decisions.

WHAT’S UP!

Today’s What’s Up is about tax filings. Since no one is perfect, you need to know what to do if you discover an error on your filed tax return. Fortunately, there is good news. If you discover an error, you can file an amended return known as form 1040X. The key is that you have three years from when you filed the original return or two years from when you paid taxes related to that error to file an amended return.

 

 

 

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