April is Financial Literacy Month, and experts agree that financial literacy is more important than ever in today’s fast-changing economy. Karen Schaeffer, a certified financial planner, recently joined Bob Leins on the ForYourBenefit podcast to discuss ways to become more financially savvy and avoid financial fraud.
Financial literacy refers to the knowledge and skills necessary to make informed and effective decisions about money matters. This includes understanding how to track and manage personal spending, using debt responsibly, investing for the future, and protecting against financial fraud.
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According to a recent survey, nearly two-thirds of Americans cannot pass a basic financial literacy quiz. This lack of understanding can lead to poor financial decisions, costly mistakes, and susceptibility to financial scams.
One of the most important skills for financial literacy is tracking and managing personal spending. This involves creating a budget and tracking expenses to ensure that spending aligns with income and financial goals. By understanding where money is going, individuals can identify areas where they can cut back and save for the future.
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Another key concept is using debt responsibly. While debt can be a useful tool for achieving financial goals, such as buying a house or paying for education, it can also lead to serious financial problems if not managed carefully. Understanding how interest rates and payment schedules work can help individuals make informed decisions about taking on debt and paying it off.
Schaeffer emphasized the importance of the miracle of compounding when it comes to investing for the future. Compounding refers to the ability of investments to grow over time, with each year’s earnings building on the previous year’s gains. By starting early and investing regularly in a diversified portfolio, individuals can take advantage of this powerful phenomenon and build wealth over time.
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However, it is equally important to understand investment dos and don’ts. This includes avoiding high-risk investments that promise unrealistic returns and focusing on a long-term strategy that aligns with individual risk tolerance and financial goals.
Finally, resources are available for individuals looking to improve their financial literacy. Schaeffer recommended reaching out to a financial advisor or using online resources such as the National Endowment for Financial Education (NEFE) or the Consumer Financial Protection Bureau (CFPB).
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Financial literacy is a critical life skill that can have a significant impact on an individual’s financial security and well-being. By taking the time to learn about money matters and make informed decisions, individuals can protect themselves against fraud, avoid costly mistakes, and achieve their financial goals.
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