Investing in Financial Literacy is Investing in Your Future

February is black history month and as a black Canadian, I felt the need to write a post specifically dedicated to the black community. However, this article is relevant to everyone, not just the BIPOC community.

Most people are aware of the importance of managing their money. At the same time, many are living paycheck to paycheck, have a lot of debt, do not have an emergency fund, and have nothing saved for retirement. But why is it so hard for most people to understand how finances work? You guessed right; financial literacy has something to do with it.

What is financial literacy?

Financial literacy is the understanding of basic skills and concepts including budgeting, managing and payment of debts, saving for the future, etc., and the discipline to use those skills every day to improve one’s financial wellbeing.

Financial literacy is the foundation of one’s relationship with money and is a lifelong journey. The earlier you become financially literate the better.

Why is a Lack of Financial Literacy a problem?

Good for our financial and mental well-being -The lack of financial literacy is a huge problem because it leads to a perpetual cycle of poor financial decisions, chronic poverty, and poor mental health.

We need it to thrive - Understanding finances seeps into all areas of our lives. It allows us to understand and maximize whatever level of income we have and transform our lives. It affects our happiness, current relationships, our future, and that of our families.

We live in a capitalist society where everything revolves around money and it’s everybody’s benefit to learn and build a healthy relationship with money.

Peace of mind – being aware of your financial situation and having a solid plan to improve it can make you feel like you’re in charge of your finances which results in less stress. On the contrary, you’ll likely feel stressed when everything is falling apart and are buried in debt, have no emergency savings, and don’t know where to start.

 Read: Link between financial stress and mental health and how to fix it

What is the solution to improving your financial literacy?

While lack of financial literacy is a big problem, there are things we can do to improve our long-term financial wellness. Getting help from a professional like a money coach is one of the best ways to get started. Working with a financial advisor will give you access to knowledge while you make decisions. In other words, you get to learn on the job which is one of the best ways to learn.

Most money coaches will show you how to do budgeting, track your expenses to eliminate unnecessary spending, give you a debt payment strategy to attack your debt, a strategy to build an emergency fund, and start saving for your future.

Learning and practicing skills like budgeting, saving for emergencies and for the future, managing and payment of debts, keeping track of expenses, periodically checking your credit score will help you become financially literate.

Long-term financial wellness is dependent on the foundations of financial literacy which are best built early in life. Lack of financial skills like budgeting and planning leads most people to sink in debts like credit cards, lines of credit, predatory lenders who offer payday loans, etc. They don’t understand the costs and difficulty of repaying them.

Ideally, most people would be proactive in repaying their debts and setting aside emergency funds of about 3-6 months’ monthly expenses. It’s however difficult for those who are in deep financial troubles to be proactive as most times they are overwhelmed. There’s a need for open conversations, financial counseling, and increasing awareness of financial wellness to reduce the stigma of speaking about financial stresses.

Got any questions? Ask a Topspin Finance Money coach.