Two weeks ago, my friend and colleague Lisa Brammer wrote a great blog about financial literacy (read her blog here) and included a brief quiz of basic financial concepts. If you took the quiz, did you pass? Many of us did not, and frankly there is a big price to pay for our lack of basic financial literacy and judgement.
National consumer debt is bad, and getting worse. Those of you who pay attention to such things know that consumer debt is at historic levels. That includes all types of debt: mortgage, credit card, auto loan and especially student loans. The New York Federal Reserve will release its first quarter report on consumer debt in the next few weeks and I would bet bratwursts to Francs we will set yet another record.
Paired with the fact that the majority of us don’t have enough money to even cover one month of our living expenses, let alone a major emergency, our individual financial portraits are, frankly, pretty awful.
So, yes, excessive debt is bad.
So why does this fact seem to attract little attention these days? When the New York Fed releases its report there are typically cursory news reports about the records we are setting. One can almost hear the cluck, cluck, cluck of the reporter’s tongue citing how bad debt has become. Shame on you American consumers!
Yet, it seems that when the economy is good, we tend to ignore the consequences of being radically overextended. With unemployment low, and wages steady if not rising, we pretty much have the cash from pay check to paycheck to pay off our debt.
So how do we change this?
Events like Financial Literacy Month are good to call attention to the tools and resources available to help us right our financial ships. Unfortunately, it may take a fairly catastrophic event, like a recession, to really get our attention enough to actually change our habits.
Yet, sometimes it is just a matter of taking small steps to climb that big mountain. Google “Financial Literacy” and you will find a ton of resources to help educate and get direction to correct financial peril.
One such resource I found was actually a government site: www.mymoney.gov. To quote the website about what the purpose of it is:
“This website is a product of the Congressionally chartered Federal Financial Literacy and Education Commission, which is made up of more than 20 Federal entities that are coordinating and collaborating to strengthen financial capability and increase access to financial services for all Americans.”
What I found interesting is that this is really a simple web site for young, middle aged and older Americans to find basic tools to build their financial literacy.
They built the site around what they call the “My Money Five,”:
- EARN – Make the most of what you earn by understanding your pay and benefits.
- SAVE & INVEST – It’s never too early to start saving for future goals such as a house or retirement, even by saving small amounts.
- PROTECT – Taking precautions about your financial situation, accumulate emergency savings, and have the right insurance.
- SPEND – Be sure you are getting a good value, especially with big purchases, by shopping around and comparing prices and products.
- BORROW – Borrowing money can enable some essential purchases and builds credit, but interest costs can be expenses. And, if you borrow too much, you will have a large debt to be repaid.
Included on each page are simple suggestions for understanding our financial levers. They also include tools like tax withholding calculators, links to free credit reports, sample budgeting worksheets, tips to protect your personal information and more.
In her blog Lisa points out some good news that younger consumers are improving their financial literacy. Schools certainly are doing more to prepare students to face financial reality once they become part of the working world. Yet, knowing versus doing are two separate things. The allure of easy credit is certainly seductive and more attractive than the dull, but critical, discipline of personal financial management. As our debt picture stands right now it will take a monumental effort to change this situation. Yet, even a few small steps today can improve our chances of avoiding financial catastrophe.
A. Alliance Collection Agency, Inc. is a full service, licensed accounts receivable management and debt collection agency providing highly effective, customized one on one management and recovery solutions for our business partners. Founded innorthern Illinois in 2005, we have been proudly improving the bottom-line on behalf of our business partners in and around Chicagoland for over 14 years.