Understanding basic money management skills are extremely important for Millennials’ long-term financial stability and success. Financial literacy entails the understanding of numerous concepts. They include but are not limited to concepts such as budgeting, checking and savings accounts, credit, and investments, etc. What is the best way to your money? Why is millennial financial literacy so important?
The common definition of millennials includes people born from the early 1980s to the early 2000s. This age group includes people who are now young adults and are middle-aged. Essentially a larger component of the workforce is comprised in this category and has a significant contribution to the economy. It can also mean that this group in our communities has a significant impact on how society as a whole is financially shaped. Therefore, millennial financial literacy essentially defines the financial construct of our society.
Millennial financial literacy is important for avoiding – or overcoming – debt.
Understanding Millennial Financial Literacy
Understanding basic money skills can go a long way when it comes to living a healthy financial life. The more financial literacy Millennials have, the easier it is for them to avoid excessive debt and prepare for the future. Debt management is a crucial part of managing finances and is an unavoidable circumstance in any person’s life. Therefore, having the basic financial concepts in order at the most crucial stage of your life will set the direction for your future.
So, how well are millennials handling their finances? This varies based on the level of financial agility that each of them has. In a study conducted by the National Endowment for Financial Education and George Washington University, only 8 percent of Millennials claim they have a high level of financial knowledge. Two-thirds of the respondents admit to having at least one long-term debt, such as a car loan, student loan, or home mortgage. Only 32 percent say they have enough for three months of household expenses.
Millennial Financial Literacy – What Should You Do?
Becoming financially literate takes commitment and ongoing dedication. Given the easy access to consumer credit, it is easy for anyone to derail along the journey. Even when you have a perfectly clean record of managing your finances there is still a chance you are faced with a pandemic. Curveballs are endless. It is how you face each financial challenge that would reshape your financial journey. So, where should you start? What is your approach to millennial financial literacy?
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Learn how to budget
Learning how to budget is the cornerstone of responsible financial planning. Creating and maintaining a budget shows precisely how much money you have and where it’s spent. A budget will help you find ways to save money and plan for the future.
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Understand credit
Learn the most important concepts of credit, including why credit is necessary, the information used to calculate a credit score, and how to improve a credit score. It’s also crucial to understand the best strategies for paying down credit card debt.
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Create a checking/savings account
Creating a checking and savings account is one of the first actions you can take to keep your money safe and make paying bills easier and more convenient.
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Understand debt/loans
There are some student loan repayment options to help you pay off student loans promptly that will also work with your budget. Repayment plans can be changed at any time, even if you’ve been assigned a specific plan when you first began repaying the student loan.
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Understand the danger of identity theft
Identity theft occurs when someone uses your personal information such as your name, Social Security number, credit card number, or other identifying information without your permission to commit fraud or other crimes. The best way to help prevent becoming a victim of identity theft is to safeguard your personal information.
How to Achieve Financial Literacy?
Financial fitness isn’t achieved overnight. Establishing a healthy financial lifestyle takes time, knowledge, and dedication. Getting organized is one of the keys to achieving lifelong financial health. Consumers need to learn to track their spending, protect their identity and take the time to understand what credit is and how to build it. This knowledge is required throughout your entire life. However, as a millennial, you have even more responsibility to stay on track and make the right financial decisions. American Consumer Credit Counseling details 20 steps to financial health. These can set the direction for millennials to maneuver their financial journey.
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Pledge to change how to feel about money
Examine your attitudes about money and decide that you are ready to change your financial situation.
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Get organized
Organize income and expenses to see your whole financial picture.
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Get copies of your credit report
Review for accuracy to identify errors or fraudulent activity.
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Dispute any erroneous information on your credit report
Write to the credit reporting agency disputing the item and include any supporting documents.
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Set financial goals
Goals should be specific, measurable, achievable, realistic, and timely.
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Set short-mid-and long-term goals
Goals differ in the length of time needed to achieve them.
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Track your spending
It is important to determine where and how your money is being spent in order to achieve financial health.
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Create a budget
A budget shows the flow of money in (income) and out (expenses) of the household.
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Reduce spending
Reducing daily, weekly and monthly spending is crucial in achieving financial health and an instrumental step to successful budgeting.
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Determine your net worth
Knowing your net worth allows you and measure your progress over time. The more you save, the greater your net worth.
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Pay down debt
Calculate your monthly payoff amount and date of completion by using a debt payoff calculator.
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Eliminate unnecessary credit cards
The best number of credit cards depends on your ability to manage your debit and credit card payments.
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Start a savings plan
Consumers should plan on committing to a 10 percent savings plan.
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Protect your assets
Review your health insurance policy, auto policy, life insurance, and disability insurance to ensure there is adequate coverage.
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Manage major purchases
Before making a major purchase review your financial goals, budget, cash flow, and accessibility, and availability of credit.
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Secure your financial future
Investing is one way to potentially grow your net worth. Take advantage of employer-sponsored investment plans such as a 401k.
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Financial checkups
Periodically check-in and make sure you are on track as it is easy to let things fall by the wayside once a routine is created and things can change.
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Understand the cost of credit
Be sure to weigh your options before making a credit decision.
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Protect your identity
Check your credit report for signs of identity theft, errors in reporting, or other red flags.
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Watch out for the warning signs of financial trouble
Some signs include paying bills after the due date, skipping a credit card bill to pay another, or ignoring credit card statements.
American Consumer Credit Counseling provides ample resources to learn more about your overall financial management. While as a company, our main focus is on credit and debt counseling services, there are ample resources a millennial can use to enhance their financial discipline. In line with millennial financial literacy here are some more key tips you can follow to really get things on order.
What Else Can They Do?
Like with any other aspect in life, getting the foundation solid is the first step to becoming financially literate and responsible. Once the aforementioned fundamentals are in order, you can also look at other aspects to strengthen your journey.
As a millennial how prepared are you for retirement? What steps have you taken to secure a stress-free retirement? If your credit is in an unhealthy position, what steps have you taken to rebuild it? How prepared are you for emergencies? The Pandemic has really brought forward a whole new perspective to life and specifically finances. Did you lose your source of income? What steps have you taken to face the challenges?
What actions are in place to tackle your credit and debt problems? Who have you reached out to for help? Where do you stand versus the financial goals you set for yourself? What financial tools do you use to stay on track?
The important thing to understand is that financial literacy is an ongoing job. As millennials, you have a bigger responsibility to stay on track and set financial direction to yourself, your families as well as society in general.
Millennial financial literacy is a more complex subject and includes every aspect of finances. Therefore, keeping in touch with your financial journey is crucial. Acknowledge failure and ask for help when necessary.
If you are struggling to pay off debt, ACCC may be able to help. Schedule a free credit counseling session with us today!
