Do you know what to do to fix poor credit scores? Are you familiar with the basics of investing and saving for retirement? These are just a couple of the critical questions that millennials should be asking themselves when it comes to personal finance.
Unfortunately, many members of this generation are struggling with large amounts of student loan debt as well as credit card debt, and an overall low level of financial literacy education. In fact, the average millennial scored only 42 percent on a recent Personal Finance Index, compared to 50 percent for the general population.
To compound the issue, studies reveal a sickly situation regarding their financial health as a result of poor financial habits: millennials are more likely than any other age group to have more debt on their credit cards than emergency savings, with 45 percent reporting this financial situation.
It's clear that financial literacy matters more than ever. And I'm excited to share in this blog post some valuable lessons I've learned that have enabled me to build financial stability.
As a fellow millennial, I understand the struggles we face, and I'm eager to provide some insight into how to improve your financial literacy and take control of your finances.
Reach out here for personalized financial guidance.
The contents of this article are for educational purposes only. They are not intended to be a source of professional financial advice. You will find experts on financial planning, financial management, and real estate here. More on disclaimers here.
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Financial literacy refers to the knowledge, skills, and ability to make informed and effective decisions about financial matters. It involves understanding basic financial concepts such as budgeting, saving, investing, borrowing, and managing debt.
A financially literate person has the ability to understand financial products and services, analyze financial risks and opportunities, and make informed financial decisions that are in line with their financial goals.
Although earning, spending, and saving are fundamental aspects of financial literacy that may seem intuitive to most people, budgeting, investing, managing debt, and protecting oneself financially are also essential components that reinforce the three main aspects.
Financial literacy is important for personal financial management and for making informed decisions about investments, loans, and other financial transactions. It is a critical life skill that can lead to financial security and long-term financial well-being.
Having a solid understanding of financial concepts and products can help individuals prepare for and navigate financial emergencies. Given that economic disparities disproportionately affect students of color, improving financial literacy can be a crucial step in promoting wealth accumulation and reducing wealth disparities in marginalized communities.
Financial literacy is crucial for anyone seeking to improve their financial wellbeing. It can help you prepare for economic challenges, emergencies, and unexpected events.
For instance, having financial knowledge can help you respond effectively to financial emergencies and minimize their impact on your financial stability.
Moreover, studies show that economic disparities disproportionately affect students of color, making financial literacy an essential tool for building financial resilience and bridging the wealth gap.
Improved financial literacy can also help you accumulate wealth, manage debt, and make informed financial decisions. By equipping yourself with financial knowledge and skills, you can better prepare for the future and achieve your financial goals.
Better Financial Decision-making
Financial literacy enables individuals to make informed and effective decisions about their money. With a good understanding of financial concepts and products, people are better equipped to manage their finances, avoid financial pitfalls, and achieve their financial goals.
Improved Financial Well-being
Financial literacy can lead to greater financial security and stability. By making informed decisions about spending, saving, and investing, individuals can reduce financial stress and build wealth over time.
Protection against Financial Fraud and Scams
Financial literacy can help individuals recognize and avoid financial scams and fraud. With knowledge of financial products and services, people are less likely to fall prey to fraudulent schemes and can protect themselves from financial harm.
Better Career Prospects
Financial literacy can improve career prospects by enabling individuals to make informed decisions about job offers, negotiate salaries, and plan for retirement.
Positive Impact on Future Generations
Financial literacy is a critical life skill that can be passed down from one generation to the next. By teaching children and young adults about financial concepts and best practices, parents can help set their children on a path to financial success.
Financial literacy is essential for young adults, including millennials, as they navigate an increasingly complex financial landscape.
Lack of financial education makes it easy for youth to pick up bad financial habits
Financial literacy can help youth to avoid developing bad financial habits that can have long-term consequences. Without proper financial education, youth may fall into patterns of overspending, accumulating debt, or failing to save for the future, setting them back financially for years to come.
Increase your odds of fulfilling financial goals
Furthermore, financial literacy can help youth increase their odds of fulfilling their financial goals. Whether it's saving for college, buying a car, or starting a business, having a solid understanding of personal finance can help youth create a plan to achieve their goals and secure their financial future.
Learning financial literacy involves a combination of resources and actions. Here are some strategies to improve financial literacy skills:
Overall, learning financial literacy requires a commitment to continuous education, proactive planning, and responsible decision-making. With time and effort, anyone can develop the skills and knowledge necessary to make smart financial choices and achieve their financial goals.
For years I took on student loans without batting an eyelash. Even my $81,000 total didn’t bother me too much because I’d pay it back “eventually.”
It wasn’t until I actually calculated the interest that I realized how much I would pay over time.
At my worst point, I was paying more than $300 per month in interest alone, and it killed me.
That was the kick in the pants I needed to take action on my student loans.
On the flip side, interest can be a very powerful tool to help build wealth. Compound interest, or interest that accrues on interest, can help millennials build a hefty nest egg if they start saving for retirement now. Millennials can do that through an employer-sponsored 401(k), or by creating an Individual Retirement Account (or IRA, for short).
Let me give you an example. If at age 25, you can only afford to save $50 a month, and you assume a very conservative 4 percent return monthly, at age 65 you would have a whopping $240,000, according to this handy compound interest calculator. And chances are you would save more because you would be earning more over this time. Fifty dollars is a night out. I think it’s well worth the sacrifice.
Learning about personal finance motivated me to start tracking my income and expenses. I was shocked to find how much I spent on $5 coffees and eating out— I love these simple pleasures, but no one needs them every day. Once I realized I needed to spend less than I earned and I actually saw the numbers in black and white, I started to make changes in my habits.
I began to calculate how much of my income was being spent on certain items. Instead of looking at that meal at its current price, I thought in terms of, “That’s an hour of work” or “I’d have to work a full day to pay for that.” That financial mentality changed everything for me.
In addition, I started to calculate how much of my income was going toward rent. Typically, you want your rent to be 30 percent or less of your income. When I lived in NYC, my rent was 50 percent of my income. Because of that, I needed to make changes elsewhere in my budget.
Millennials have a lot of competing priorities, from paying off student loans to saving for retirement or even making a down payment on a property. Learning how to manage your money can help you accomplish those things with the least amount of stress.
If you’re a millennial looking to become financially literate, start by taking the following steps:
All these steps are essential in developing financial literacy, but the most important action you can take early in your career is investing.
“Earnings, consumption, and saving come pretty naturally as your career grows over the years. However, investing is the one area that most millennials are challenged with once they make money,” says Samuel Rad, a UCLA instructor and financial adviser in Los Angeles.
“Most millennials came into the workforce right as the Great Recession took place, and therefore are very skeptical of investing, especially in the stock market,” Rad continues. “However, in order to build maximum wealth, it is essential to get familiar with investing — and the younger you start, the better off you are.”
In short, developing a balanced budget comes naturally as you progress in your career. But early, low-risk investments can do you a world of good for your future financial wealth.
There isn’t much time to waste. The sooner you learn to manage money, the happier you’ll be.
Financial education helped me go from paying only the minimum on my student loans to now putting several thousand dollars a month toward debt. Imagine what changes you can make in your life simply by strengthening your own financial awareness.
The learning doesn't need to stop here.
Bay Street Capital Holdings is a Black-owned, independent investment advisory, wealth management, and financial planning firm that manages portfolios with the goal of maintaining and increasing total assets and income with a high priority on managing total risk and volatility.
The founder, William Huston, is recognized as Investopedia’s Top 100 Financial Advisors for 2022. Bay Street was founded to advocate for diverse and emerging fund managers and entrepreneurs and was selected as a finalist out of over 900 firms across the US in the category of Asset Manager for Corporate Social Responsibility (CSR).
https://www.investopedia.com/terms/f/financial-literacy
https://www.skillsyouneed.com/rhubarb/financial-literacy-steps
https://www.bankrate.com/banking/savings/emergency-savings-report/
https://gflec.org/wp-content/uploads/2022/04/TIAA-Institute-GFLEC-2022-Personal-Finance-P-Fin-Index
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