Happy Financial Literacy Month! If you are surprised to learn that April is nationally recognized as Financial Literacy Month, fear not, for you are not alone. The true thing to fear is that too many Americans suffer from poor financial literacy. One mistake? Well, people think that they have no need to be financially literate(!!) I, for one, find this astounding. Most people spend a substantial portion of their time working to earn money. Why would you not want to understand how money can work for you? I’m not suggesting everyone can be as savvy as Warren Buffett, but most people have aspirations such as owning a home or retiring comfortably. Financial literacy is a tool that can be used to help realize these dreams. Now, let’s answer a few questions the uninformed may have about financial literacy.
What is financial literacy? According to Investopedia.com, financial literacy is “the possession of knowledge and understanding of financial matters.” Financial matters include concepts such as compound interest, the time-value of money, inflation, and strategies for saving and investing.
Why is financial literacy important? In August 2012, the U.S. Securities and Exchange Commission (SEC) issued the Study Regarding Financial Literacy Among Investors. Aside from its usefulness in achieving financial goals, the SEC sights another area where financial literacy has a crucial impact: investment fraud. According to the Financial Industry Regulatory Authority’s website, 4 out of 5 Americans have been approached to take part in a fraudulent investment. Those who possess poor financial literacy are more susceptible to being ensnared by these frauds. The most highly publicized investment fraud in recent history was that committed by Bernard Madoff, who swindled investors out of over $36 billion dollars, of which approximately $18 billion was not recovered. Even the financially literate may have been duped, but having a basic understanding of financial concepts may be the saving grace that prevents you from losing what you’ve worked so hard to earn.
How may I become financially literate? Like most other skills, financial literacy is not something that can be attained overnight. There are many resources readily available to those motivated to improve their financial literacy, though. The internet is a great place to start, with access to online courses and countless articles discussing a plethora of finance topics. Many books have been published as well dealing with personal finance, investing, and money management. And, of course, we at Spire Group are willing to offer our skills, knowledge, and resources to those looking to set off on the path to financial literacy.