Why Financial Wellness Matters
April is Financial Literacy Month and a great time to focus on financial education. A lack of financial preparedness has huge societal costs, and in the coming years as Americans age, these costs will likely increase. There are daunting challenges facing not only the poor but also the working middle class. In the face of flat real wages, structural unemployment, a high tax burden, and higher health-care costs, it is becoming more difficult for millions of Americans to find extra income to save at the end of the month. In addition, many don’t understand the enormous commitment a self-financed retirement entails.
This is a complex problem. According to a recent survey, over 50% of Americans have less than $1,000 in savings. To combat this, our country needs a combination of things that will alert citizens to the financial reality they are facing. To start, workers need skill sets that keep pace with a rapidly changing world and wages that at least track inflation and rise with productivity gains. Workers need to be educated on the importance of regular savings especially with the rapid decline of pensions.
There also needs to be a deeper understanding that everyone is responsible for their own financial freedom and how challenging that is to attain. To accomplish this, we need to educate on the importance of starting early. For example, young workers will need to save close to $1,000 per month to remain in the middle class; $925 per month for 30 years at 8% grows to $1.26 million, but that amount saved for 20 years only grows to about $508,000. Young people are often surprised to learn that the few hundred dollars they’re saving each month may not be enough to retire into a middle-class lifestyle.
As a nation, we need an environment where a business can thrive and where sponsoring a retirement savings plan for employees doesn’t lead to sizable amounts of paperwork, time, cost, and risk. We need a smart, pro-growth regulatory environment that protects workers and consumers, but also allows for strong economic growth so our workers earn sufficient wages. Historically, each generation of Americans has worked for a chance to achieve a better lifestyle and we need this dream to continue. People would be wise not to look to the government for middle-class financial freedom. We have seen the failure of governments that promise a workers paradise complete with middle-class wealth. This is, after all, an impossible task for any nation to finance—especially one already $21 trillion in debt. With this realization, we should arm ourselves with the knowledge and tools to begin our own journey towards financial freedom.
Financial literacy needs to permeate all communities, regardless of demographics or socioeconomic standing, especially families with young children. We need early financial education in the home, mainstream financial literacy programs starting at a young age, and government funding for a public awareness campaign much like those on public health and safety issues. It should be incorporated into school curricula, media campaigns, corporate wellness programs, and, most importantly, ongoing parental discussions.
The Council for Economic Education is participating with its #MySavingsTip campaign that features personal savings tips from inspiring leaders and entrepreneurs. They include:
- Treat your finances like flossing; do it every day – Annamaria Lusardi with George Washington University’s School of Business knows first-hand the importance of spending time each week going over your expenses and savings. “If I don’t pay attention, I’m likely to spend more.” She also offers lessons learned from her own mistakes, including taking advantage of opportunities like maximizing a 401(k).
Carrie Schwab-Pomerantz, the daughter of investing legend Charles R. Schwab, agrees. “Make savings a part of your routine – like brushing your teeth.” Her advice: Start early by putting aside a small portion – say 10% – of every dollar you earn.” Most people’s mistakes are about procrastination,” she said. “As a young person, retirement seems so far off.” But when it comes to saving and investing, “time is of the essence.”
- Find the credit card that’s right for you – New York Times columnist Andrew Ross Sorkin, author of bestseller-turned-movie “Too Big to Fail”, says it’s important to do your research. “It’s not a five minute research project; you might need a few hours online. Your needs are going to be different than other people.”
Choosing the best credit card is an important decision, advises NerdWallet. “The credit card you choose should help you achieve your financial goals in the most affordable, efficient way possible.”
Research your options and ask the right questions to find the card that’s the best fit for your spending habits and credit situation. Do you want to build or rebuild your credit, save on interest, or earn travel or cash back rewards? Other questions to consider include how much it costs to open an account, is there an annual fee, what is the card’s policy on balance transfers, and how quickly will you earn rewards.
- Use biweekly payments to save money on interest and improve your credit – Biweekly loan payments are a simple way to pay down your debt – such as a car loan, student loan or high credit card balances – without drastically changing your lifestyle. And, when you reduce your total debt, your credit score improves which can translate to a lower interest rate on your next loan.
How does it work? Standard loans require one payment every month. Biweekly loan payments divide this payment in half and pay that amount every two weeks on a schedule that coincides with when you get paid. Because there are 52 weeks in a year, you’re making 26 biweekly payments over the course of a year (the equivalent of 13 monthly payments). On a monthly basis, the payment amount is the same. However, an extra month’s payment a year can reduce interest charges and shorten the term of the loan.
Benjamin Franklin, the original penny-pincher who appears on the $100 bill, once said, “An investment in knowledge always pays the best interest.” And, Financial Literacy Month is the perfect time to learn more about the many different ways to better manage your money.