Tag: financial literacy

What does it mean to be financially literate?

smbaccari

We hear this term a lot these days. In general, most people are fairly “educated”. In the US a person can get a free education till the 12th grade, which in most states you have till your 21st birthday, to complete. Which is fair. Beyond that age… Well that’s a different topic all together.

MOST people are “literate” when they leave school, in general, or at least we hope so.

But school does not make us financially literate, not even a little. I thought school was supposed to prepare us for the real world. Yet it does not teach us ANYTHING about real adulting.

Did they teach you how to balance a checkbook in math class? NO! Yet they told us we needed algebra!  Understanding how a mortgage works or carrying a large balance on a credit card, or what compound interest is, would have been helpful back in those early days, instead of finding out the hard way. That’s how most of us start to figure things out. 

Not to mention how much simpler life was before the internet and you could not see how “great” everyone else’s life “IS” or appears to be. Banks did not just say, hey you make $50,000 a year, you DESERVE this $500,000 house, and we are going to give you the money for it, even though you only have $15,000 (aka 3%) to put down.

What always drove me crazy about this “low down payment’ thing, is HOW will you afford the monthly payments, IF you could barely save the down payment? Then the banks started making people pay PMI. Which was such a joke, because they made YOU the buyer insure your own loan in case you defaulted. NO risk for the banks. People were getting mortgages that had NO idea what they were signing up for. The bank or mortgage company is NOT the one that should tell you how much you can afford for a house, this is something WE should know/decide, as it’s different for everyone. But most people just go with “the bank said we qualify for more than we asked for!” Let’s get the bigger house! After all the bank said we could! The bank is running a business, they don’t care about you. No, they don’t teach us this in school either.

Same deal with credit cards. You get close to your max on a credit card, and you make at least your min. payment, They UP your limit. They want you to carry a balance, it’s good for their business.

These basic things are not taught in school, they are not discussed in most homes, well unless you are wealthy. The wealthy people DO talk to their kids about money, so they grow up in most cases knowing more than the rest of us. And those are just the basic things, never mind that scary word… “investing”! Rich people stuff, right?

The average midclass person looks at investing like it’s a form of gambling. Again, not the wealthy people, that is how they got wealthy!

When it comes down to it most people ARE NOT financially literate, and we need to change that.

Check out these stats from Moneyzine in the attached article.

US Financial Literacy Statistics 2024: Key Demographics & Cost (moneyzine.com)

 Our kids deserve to be educated and make better decisions early on in life vs learning the hard way which ends up wasting so much money that they will work so hard for.  There are many ways to get a better understanding about how money works these days. We have the internet, books, podcast….

As adults we have the power to be more educated about money, so we can make it less tabu for our kids. If the kids are of high school age or older, hey you can do it together! Be honest and upfront and tell them, we are going to learn together! 😊 You got this! Dig in, one topic at a time that you want to know more about. You might find you dig the subject! 😊

Talking to our kids about money

smbaccari

Talking to our kids about money…

There is extensive evidence on how people’s emotions and feelings around money are shaped by the actions we see, hear, and feel pertaining to money when we are kids. Our fears, our habits and our anxiety around money usually comes from experiences we had as children. No pressure here on us parents! Like our job as parents is not hard enough! Ok so let’s break it down.  Perhaps we need to put some rules in place like trying not to argue about money in front of the kids when they are young? Easier said then done…

When money is tight, it’s stressful, and the kid’s associate money with a tense situation and learn to “fear” money or think they just need more money and it will all be ok, right? As adults we know this is not always true. More money does not make all the problems go away, if the habits don’t change and we spend more than we make.

So how do we fix this? We know we need to slow our roll, create budgets, and cut back on the non-essential items… Ya, Ya, Ya…We all know what we NEED to do.

The issue is how do we not create kids that have fears or bad habits around money?

Money does NEED to be discussed and it should not be hidden from the kids. They do not need all the details of course but we do want them to appreciate money, respect money and understand the “value” of money. We also need to teach them money is earned as well, which I think makes it have more “value”.  When you “work” for your “cash” and you think you want a new toy or something, usually that toy is taken better care of when the kids pay for it themselves. Trust me, I have witnessed it firsthand with my own child over the years.  I’m not saying they have to work for ALL their toys. 😊These are the things our parents probably did with most of us as well. Sometimes as parents we “give” too much to the kids, even if we don’t have the money. It’s OK to sometimes say NO, or not at this time.  We don’t need the kids to think there is no money, just that money is not like a faucet that has an endless flow of money.  Social media has played a role in kids thinking they need to have what everyone else has! You can just say NO.

Maybe it’s Ok to show the kids the bills, like the electric bill and why we shut lights off when leaving the room.  Opening a savings account for your children say between the ages of 7-12 or so is always fun. Make sure they are with you when you set up the account and the rule is they MUST put 15% of any money they earn or are given as a gift, into the account first. Then they can do what they want with the rest. This will help them get in the habit of “paying themselves first”. Not a bad idea to also encourage them to donate some of that money to a charity here and there.  Once the kids are in high school or have a “paying” job, lets play it safe and for this conversation, they have a W-2 job working part time, you could consider opening a custodial ROTH IRA for the child. Keep in mind once they are 18 or 21, depending on your state laws, it’s their IRA now, so do go over the rules with them in detail. Custodial Roth IRA: Your guide to Roth IRAs for kids | Fidelity

Once they start high school. And college is on the horizon, you MUST talk about money! College is expensive! Even state schools can run as high as $35,000 per year! As parents we want to do everything for our kids, including paying for college. But it’s not always possible and this again is a time when it’s OK to say NO to some things. Maybe it’s NO to the most expensive college they picked, due to little or no aid. The budget is important here. If college debt is going to be more than what they will earn the first year out, might want to re-think the school choice…. Student loans are ok but keep it LOW! Show then the online calculators and how interest calculates! It’s 4 years of their lives, do they want to pay for it for 10+ years. Student Loan Calculator | Bankrate

 If we talk to the kids throughout their lives about money and make it an open conversation maybe when it comes to large expenses like college, it will be an easier conversation? Discuss not spending more than you make, discuss paying yourself first, aka the 15% in the savings account, discuss investing and retirement accounts, show them your retirement account statements… Let’s talk money with our kids!

Week One Money Challenge!

smbaccari

This blog” Two Chicks Talking Money” is for other woman like us, just regular people with regular jobs. Getting financially “literate” is intimidating and may seem overwhelming.  That’s why we have each other! It’s not going to take much to get the ball rolling and start learning. We are not going to become day traders and must understand every technical term about the stock market. We are also not going to talk about investing in any ONE stock. We are going to INVEST in the market though!

Let’s do ONE Challenge each week, to up our financial position. Little steps in the right direction…

This week, Lets find an extra $50.00-$100.00 you can put into your retirement account AUTOMATICALLY, so that this happens EVERY month AUTOMATICLY.

IF you do not have a tax deferred retirement account at work, investigate opening a ROTH IRA or a traditional IRA. Get online or walk into a Fidelity office. They will take it from there.

We can do this! That’s this week’s challenge!

If you have never read the book The Millionaire Next Door, by Thomas J Stanley & William D Danko. You must pick it up and read this! It is motivating and makes you believe Yes; I too can do this!

Now don’t get me wrong this is NOT a get rich fast book or some fast-track way to get to the finish line. These days we only have ourselves to ensure we have money to survive when we are older and no longer able or willing to work. How quickly we get to that finish line, well that does depend on how much you save. The younger you start, even with a small amount, the faster it grows. So, when we think of the word INVESTING, we do this!! This can be in a company retirement plan, like a 401K. 403b…. Or even just a brokerage account. BUT we MUST set money aside for it to grow. Let’s also not get worked up on when the “Market” goes down, it will, we know this! It will also go up! Ya more for us!!! So what do we do when the market goes down??? I say BUY MORE! If the market is DOWN (And we are not pulling money out because we are already retired) Up your monthly contribution! Even if it’s only $50.00 more a month. Hey, it’s a SALE on STOCKS! Right!? What Chick does not like a sale!!! That’s what it is accentually. It’s all good! Clean your “Closet” aka, stop paying for things you do not need every month… Subscriptions for streaming, a latte EVERY day… Girl, that’s $100.00 a month if the Latte is Monday- Friday! Let’s not even get into the calories and the sugar! I LOVE Lattes, but not 5 days a week. Let’s fill the “closet” with more Index funds! 😊 Good Luck this week!