Lack of Financial Literacy: Modern Problem of Society

Lack of Financial Literacy: Modern Problem of Society

All processes in our lives are connected with finances. From education to food and clothes, we manage our budget every day. The behavior we choose reflects on the total economic situation in the country. 

However, most Americans still haven’t learned the basics of financial literacy. Spending without a plan, we ruin our position and lose opportunities. 

Do you borrow money without a particular goal? Or spend savings on impulsive purchases? See what are the consequences of such behavior, and how to overcome the money disorder. 

Are You Really Educated: See What Numbers Show 

The Financial Industry Regulatory Authority (FINRA) regularly surveys American citizens. People should answer 5 simple questions on financial literacy. The topics concern budgeting, saving, investing, and taking loans. 

Unfortunately, most people cannot ask even 3 of them correctly. Moreover, the number of people who answered only 3 and fewer questions is rising year to year. The survey shows a decrease in literacy in the US. 

The number of people who gave only 3 and fewer right answers is rising year to year

Why did it happen? The lack of education at schools and colleges is visible here. Despite the state gradually introducing financial literacy lessons at schools, the picture didn’t change much.  

Teens adopt their parents’ behavior, so the educational gap in the 80-the 90s still influences society – parents simply cannot teach their children to manage budgets.

How to identify Money Disorder 

Financial behavior is strongly connected with our mental health. Gary Mottola, research director of the FINRA says “Declining financial health literacy predicts several aspects to a person’s life: decision making, well-being, scam susceptibility, and cognitive health.” 

Scientists and psychologists identify problems with money decisions as a mental disorder. See the signs of unhealthy relations with your budget:

  1. Problems Denial

You ignore the debts and pretend troubles don’t exist? Neglecting the present situation, you risk worsening the issue. 

  1. Sense of Guilt for Debts and Loans

Worrying about these issues is okay. But feeling a heavy burden every day leads to exhaustion.

  1. Overspending and Impulsive Purchases

These factors show a lack of responsibility and awareness.

  1. Fear of Loss and Extra Thrift

Fear bounds opportunities. Some people are afraid of investing and making money work for them. They simply collect all cash and live in poverty anyways.  

The Risks of Financial Education Lack 

  • Debt Cycles

NFCC claims 60% of citizens have a credit card debt at the moment. Moreover, 2 in 5 of them face such trouble from month to month. Why? Struggling with it once, you have few and few chances to get rid of it. Your credit score is falling, while the interest for a further loan becomes higher. 

  • Economy Deterioration 

Decisions we make every day influence the economic situation. Already surviving a crisis after the COVID pandemic, we risk facing new problems. 

  • Retirement Uncertainty

The report on economic well-being shows that one-fourth of none-retired Americans haven’t collected any money for retirement.

It means, even those who can collect some savings, should rely on government support. Is it a sign of levity? 

Most probably, people simply have no time and resources to prepare for retirement. Inflation, global crisis, and precious debts lead to total uncertainty. 

FAQs: How to Borrow Sensibly 

Already living in debt, a person cannot think about the future – you may even feel demotivated concerning financial education. Hence, the first step of introducing money literacy is to learn financial management. By getting rid of debts, you’ll build a path to further achievements. 

When to borrow? 

There are only two cases to use loans:

  • Emergency. When you have no other choice except for extra cash, credit can be a necessary measure. Don’t confuse it with impulsive buying and whims. Car breaks, natural disasters, job loss, or medical treatment are reasonable cases to borrow money. On all other occasions, make everything possible to survive hard times yourself. 
  • Plan. If you know for sure how to return this money and make it on time, risk and borrow. Still, make sure overpaying is worth it.
  • If you take a mortgage to buy new accommodation or need a new car to drive for work, loans can be a great help. But using your credit card for going out, or buying new clothes is a waste. 

How to borrow? 

Make sure your credit score is on a decent level. The main problem with debt cycles is the rising interest – people with bad credit history overpay way more than wealthy clients. Before borrowing any sum, take care of your score:

  • plan the repayment of previous debts. Start with the smallest ones to see the improvement quickly;
  • contact your credit agency and check the papers – sometimes they contain old records. 

Then, plan the repayment. Use loan calculators to know for sure how much you’ll spend. 

How to choose the lender?

National banks and other official institutions offer lower interest rates but give loans only for people with high scores. If you struggle with previous debts, you choose private lenders. 

Before turning to any of them, compare all options – you can make it yourself or use loan mediators. These services will match your request with the related lender. 

What to do next?

Bringing finances to order brings you plenty of opportunities. if you already overcome your debts issues, move to the next actions:

  • save a part of your income to create an emergency fund;
  • learn the basics of investments;
  • start managing your budget – this way you’ll know opportunities and expenses in advance.  
  • increase your knowledge with the help of education platforms, courses, and books on money literacy.