Financial Literacy: Why It Matters & How to Improve Yours
Being financially literate in today’s economic climate is more important than ever. Learning how to improve financial literacy can help individuals make better money management decisions, create an effective budget, save adequately for major life goals, and prepare for a financially secure retirement. While it may seem overwhelming, financial literacy starts with understanding the importance of budgeting and saving. A 2023 survey revealed that while 74% of Americans have a monthly budget, 16% often exceed their budgeted amounts, highlighting the need for better financial habits.
With individuals carrying more responsibility for their financial well-being, it’s crucial to educate yourself on how to manage money effectively, regardless of age or financial experience. Here are a few reasons why financial literacy is essential for building financial stability:
Longer Life Span
In 1960, the average lifespan was 69.7 years. A recent CDC report shows that today, it has increased to 78.4 years. While living longer is a positive development, it also means people must save more for retirement. However, a 2023 YouGov survey found that 24% of American adults have no financial arrangements, 15% have saved less than $5,000 for retirement, and only 2% have accumulated over a million dollars. By educating individuals on how to improve financial literacy early, more people can begin saving for retirement sooner and build a strong financial foundation.
Reduced Pensions
Decades ago, employees typically spent their entire careers with one company and retired with a pension. Workers were not required to make investment decisions or manage their retirement funds. Today, aside from the public sector, most businesses have eliminated pensions, replacing them with 401(k) plans. This shift requires individuals to determine their contributions, select investments, and take an active role in managing their financial future. Understanding how to manage money effectively is now critical to ensuring long-term financial security.
Social Security Benefits Not Enough to Live On
As of January 2025, the estimated average Social Security benefit is $1,976 per month—far from sufficient to live on comfortably. To achieve financial stability, retirees need additional income sources, such as personal savings, employer-sponsored retirement plans, or IRAs. Prioritizing the importance of budgeting and saving throughout one’s career can help ensure a more secure retirement.
The Risks of Credit Card Debt
Credit card companies aggressively market their products, and consumers often receive multiple offers each week. While credit cards can be useful financial tools, they also make it easy to accumulate high-interest debt. Without strong financial literacy, individuals may fall into the trap of overspending and struggling with repayment. Learning how to manage money effectively can help people use credit responsibly and avoid financial pitfalls.
The Shift Away from Cash
A Pew Research Center survey found that 41% of Americans no longer use cash for any weekly purchases. While digital payments and debit cards offer convenience, they also create a detachment from physical money, making it easier to overspend without realizing the immediate impact. By improving financial literacy, individuals can become more conscious of their spending habits and make smarter financial decisions, regardless of the payment method they use.
Developing financial knowledge is crucial for everyone. Whether learning the basics or refining existing skills, understanding the importance of budgeting and saving, knowing how to manage money effectively, and focusing on building financial stability can help individuals achieve lasting financial security.
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- https://www.cdc.gov/nchs/products/databriefs/db521.htm
- https://business.yougov.com/content/48009-how-much-does-the-average-american-have-in-retirement-savings
- https://www.ssa.gov/faqs/en/questions/KA-01903.html
- https://www.pewresearch.org/short-reads/2022/10/05/more-americans-are-joining-the-cashless-economy/
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