It’s a question we’ve asked before: What does it mean to be financially literate? There’s no one, single answer. But in general, anyone working towards a greater degree of financial literacy needs to learn a set of skills, and couple those skills with an understanding of several concepts and ideas related to money.
Money Vehicle takes its own approach to teaching those skills and concepts. Not only that, but we also stretch the importance of incorporating goals into your financial plan, and developing the right mindset—a “pro” mindset. Altogether, this creates a comprehensive, holistic approach to your finances.
But again, this isn’t the only way to develop a better sense of financial literacy. In fact, there are some national standards out there, created by the Council for Economic Education (CEE) and the Jump$tart Coalition for Personal Financial Literacy. You can, and should, read them yourself, but here’s what the CEE has to say about them:
“These national standards identify knowledge, skills, and decision-making abilities that young people should acquire during their K-12 education. They provide a framework for a complete personal finance curriculum that progresses through elementary, middle, and high school to prepare students for their lives as smart consumers.”
We thought it was important to run through the six key topics covered by this set of national standards: Earning income, spending, saving, investing, managing credit, and managing risk. We’ll discuss each in a little more detail below:
Financial Literacy Standards: 1. Earning income
Earning income is pretty straightforward: It’s all about earning wages or a salary, and giving that income a job—or putting it to work for you. Yes, you’ll need to spend some (probably most) of it on your living expenses, especially if you’re early in your career. But earning income is incredibly important as it’ll ultimately dictate what you can afford, how you piece together a budget, and determine how much you can afford to save and invest.
But as the CEE writes, it’s not just about your paycheck: Many people “…can also earn income from interest, dividends, rents, entrepreneurship, business profits, or increases in the value of investments. Employee compensation may also include access to employee benefits such as retirement plans and health insurance.”
So, keep that all in mind when you’re thinking about your total income in the future.
Spending is pretty straightforward, right? Obviously, we’re all going to spend money—there’s really no avoiding it. As such, the “spending” pillar is focused on building a budget to allocate spending, and making sure that we’re spending wisely.
Further: “People can often improve their financial wellbeing by making well-informed spending decisions, which includes critical evaluation of price, quality, product information, and method of payment. Individual spending decisions may be influenced by financial constraints, personal preferences, unique needs, peers, and advertising.”
Saving is the yin to spending’s yang, and as such, it’s prominent among the national standards. We should all be saving something, even if it’s not very much. We have a lot to save for, too—emergency funds, college tuition, a car, a home, and retirement. But there are numerous ways to save, and numerous accounts that can be used to save.
It’s important to review those options, know the pros and cons, and make appropriate choices as to how and when we’re saving money.
You want your money to grow, right? Well, there is an entire universe of financial assets and instruments out there that you can use to invest, from cryptocurrencies to 401(k)s. This is a very complicated topic, but getting a baseline understanding of investing and all it entails is absolutely critical to the creation of your financial plan.
5. Managing Credit
Credit is scary for a lot of people, and not scary enough for others! Credit is borrowed money, and it costs money to borrow money (interest!). Because of that, it’s very important to know what credit is, how to use it, and how to properly manage it. The fact of the matter is, most of us are going to borrow money at some point to make a purchase—usually, it’s for a car, or a home. And learning how to manage that debt balance is yet another critically important element to any financial education.
6. Managing Risk
Risk is something that many of us may not think much about. Obviously, we know certain types of investing are riskier than others. But you need to think about the risks to your income, your health, or even your life, and what you can do to offset those risks. There are tools out there, like insurance, and understanding the basics of those tools can help you properly manage risk.
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