Put simply, financial literacy is the knowledge to make financially responsible decisions, whether that’s related to investing, credit, personal finance, debt or anywhere in between. If you’re not sure where to start with your finances, how to open a bank account, what a mortgage loan is or how to avoid debt, you’re not alone. The S&P Global financial literacy survey found that only 57% of American adults are considered financially literate – worldwide, that number drops to 33%.
To support your short-term and long-term financial goals, good financial decisions are crucial. Without financial literacy, a successful and stable future may seem out of reach. Close the gap by taking these initial steps to understanding your money values and influences so that you can begin the path to financial literacy.
Values and Money
Understanding your values can help you set achievable financial goals. Values can be people, things and/or places that are important to you and guide how you make decisions, which can then shape how you prioritize your time, energy and money. Start by asking yourself: What truly matters to me? What values might your answers represent?
Then, think about your values in terms of a financial choice or scenario. For example, if you received a 2020 tax refund this year, how did you spend it? Did you use it as a security deposit for a new apartment? Help with your student debt? For an upcoming family vacation? Knowing your values and what motivates you are key to realizing what can influence and impact your financial decisions.
Goals and Money
Goals help you to determine what future you want – they are your desired results, your hopes and dreams. Setting goals assists in prioritizing how you use money and helps with measuring and tracking your progress along the way. Whether you’re wanting to pay off your credit card, open a health savings account (HSA) or you’re a first-time homebuyer, setting goals will track how you’ll get there. Set SMART goals to help you achieve your hopes and dreams for the future by providing a realistic plan to follow. These goals should be:
- Specific: Ask yourself, what exactly do I want to accomplish? Why is this important to me? Is this something I really want?
- Measurable: How much? How many? How will I know when I’ve met my goal?
- Action-oriented: What specific actions do I need to complete in order to meet this goal?
- Reachable: Is this goal something I can actually, realistically reach?
- Time-bound: When will I reach this goal? Do I have a deadline that must be met, or am I fine waiting?
External Influences and Staying Focused on Goals
External influences, such as advertisements, media, celebrities or our peers can have a significant impact on your financial choices. Use strategies to stay focused on your goals, such as:
- Recognizing tactics used by advertisers: Realizing tricks such as holiday sales or promotions, buzzwords like “going soon” or “need to have it,” exciting our emotions, etc.
- Noticing when and where you’re typically tempted: Do you tend to spend more than you normally would when you’re out with friends? Do you compare your spending habits/lifestyle choices to others?
- Build in a pause: When you notice you’re spending more than usual, mentally tell yourself that you will not spend money on non-essential items for a brief period of time, setting a specific timeline and end date for your pause.
- Calculate hours or days an item is worth: Think about your hourly wage. Divide the cost of the item you want by your hourly wage to see the hours you’d have to work to pay for this item. Quantify your purchase in terms of a very valuable thing – your time.
Taking these small steps can get you and your family on track, no matter what financial decisions you need to make. Financial literacy is possible, and it’s within reach. At Farmers-Merchants Bank of Illinois, we’re ready to help you achieve it. Hop on over to our website to learn more about how we can support your goals today.
# # #