By Sabrina Lamb – Founder and Executive Director of World of Money
Let’s start with the basics: what is financial education?
Investopedia defines financial education as “the ability to understand and effectively use various financial skills, including personal financial management, budgeting, and investing.”
In other words: financial education is the foundation for your entire relationship with money. A good understanding of money can help keep you from overspending, allow you to build wealth, and lower your stress levels overall (nearly 2 in 3 adults say that money is a significant source of stress).
Financial education is extremely important to manage everyday life, navigate an unexpected event, or save for a comfortable retirement. It also plays a crucial role in racial equity. Data suggests that Asian and White Americans tend to score higher than Black and Hispanic Americans when asked six basic questions about finances. Likewise, studies by the Federal Deposit Insurance Corporation (FDIC) have found that at least 12 percent of Black and Hispanic households in the US are underbanked. Those that are underbanked are more likely to use check cashing centers, payday loans, pawn shops, and other expensive alternative financial services to manage their money. While these services may seem like a good idea, they end up costing everyone more money in the long run.
One of the top reasons unbanked people report not having a bank account is because they don’t trust banks. People don’t trust what they don’t understand. Sadly, a variety of financial topics fall into this ‘don’t understand’ and the ‘feel embarrassed asking’ category – from investing to building good credit.
This leads us back to financial education, and why it is so important. A lack of financial understanding can keep entire communities – generationally – from reaching their full potential.
To build financial equity, we must invest in immersive financial education. Educating youth and adults about money management and basic financial principles has no downsides. While our country has made strides to advance financial education in recent years, change can’t come fast enough for the millions of Americans that lack a clear understanding of financial management, or what they are capable of doing to change the trajectory of their life situation.
Less than half of states in the United States require financial education to graduate high school. Even when required, schools often lack the expertise and resources to implement. 43 percent of millennials have reported using expensive alternative financial services. Likewise, 37 percent can be defined as ‘financially fragile,’ meaning they would be unable to come up with $2,000 within a month in an emergency situation.
My advice is this: make building financial knowledge a personal goal and, together with your children, access financial education resources. Financial education can be an empowering family legacy affair. Master Your Card offers a comprehensive learning platform for adults seeking to boost their financial knowledge (and it’s free!). Likewise, my non-profit organization, WorldofMoney (powered by the YWCA Metropolitan Chicago), is fully committed to developing financially responsible adults, one child at a time. We offer proven programming and financial education resources for youth, 7-21 years of age.
Next time you puzzle over how to pay a bill on time, or why you were rejected for a car loan, remember that financial education is key to unlocking a more prosperous future. Master Your Card and WorldofMoney have the resources you need to succeed, you just need to know where to look!
Remember, fiscal security and generational wealth begins with immersive financial education.
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