April is Financial Literacy Month
Financial fluency is the understanding and application of various financial concepts and the ability to use that knowledge to make informed and effective decisions with all of one's financial resources. It encompasses topics such as budgeting, investing, borrowing, saving, and personal financial management. In our increasingly complex and fast-paced world, where economic conditions can shift rapidly, being financially fluent is more important than ever.
Financial fluency helps create a sense stability during unsettled economic times and that would be helpful to most everyone. It empowers individuals to navigate through the uncertainties, protect their finances, and seize opportunities that can lead to financial growth and security. Those who aren’t financially fluent risk falling prey to predatory practices or scammers, taking on too much debt, or missing out on beneficial financial opportunities because they didn’t recognize their value. Essentially, financial fluency is not just about growing wealth but also about protecting and managing it wisely in any economic climate.
Why Financial Fluency vs Literacy
At its core, finance is about money. Most people are exposed to money beginning at early age when we receive allowance or cash gifts from relatives or maybe even a buck or two from the tooth fairy. Many understand how to spend money, many enjoy the benefits of money, but most do not understand how to use money as a tool to achieve goals.
Financial literacy is a popular buzzword, however, literacy implies someone can comprehend and understand, while a fluency goes beyond this and conveys that a person can successfully apply what they know to their lives. We are striving for financial fluency for all at Edvisors® but especially for young adults who tend to struggle the most with money. We want young adults to go beyond knowing how to manage money and to become financially fluent so they can excel at successfully using money as a tool to enhance their lives and futures.
Why Financial Fluency Matters
The importance of financial fluency cannot be overstated. It's like being given the map in a treasure hunt; it guides you through the maze of financial decisions, big and small, leading to a more secure and prosperous life. Understanding how to manage your finances affects not just your wallet but your quality of life. The ability to budget, invest wisely, and understand complex financial products can lead to peace of mind, stability, and opportunities for personal and professional growth.
For instance, imagine having the goal of financial independence by a certain age without understanding the power of compound interest over time. This could greatly impact when you might achieve the financial independence you are seeking.
A lack of financial fluency can lead to missed opportunities, financial strain, or worse, financial ruin. Without financial fluency, people may fall for high-interest loans out of desperation, invest in volatile markets without proper research, or miss out on tax benefits that could save them thousands of dollars.
Challenges for Those Who are Not Financially Fluent
- Accumulating Unmanageable Debt: Without understanding interest rates and minimum payments, individuals can quickly find themselves in a debt spiral that's hard to escape.
- Falling for Financial Scams: Without the knowledge of common financial scams, people are more vulnerable to fraudulent schemes that promise great returns for little risk.
- Poor Investment Choices: Without a solid understanding of the stock market or investment principles, individuals might make high-risk investments without a proper strategy, potentially leading to significant losses.
Long-Term Benefits of Financial Fluency
Becoming financial fluent is akin to acquiring a toolkit that prepares you for the future, ensuring you're equipped to build a sturdy financial house that stands the test of time. Its long-term benefits are manifold, manifesting in various aspects of life, from achieving financial freedom to cultivating a sense of stability and independence that many strive for.
- Financial Freedom: Imagine living a life where you're not constantly weighed down by financial concerns, where you have the liberty to make choices that align with your values and desires rather than being dictated by economic constraints. Financial fluency is your ticket to this freedom. It guides you in making informed decisions that compound over time.
- Stability and Peace of Mind: There's a profound sense of peace that comes from knowing you have a safety net to catch you should you fall. By understanding how to manage your finances effectively, you build this very safety net for yourself and your loved ones. From establishing an emergency fund to insuring against unforeseen circumstances, financial fluency ensures you're not left vulnerable when life throws curveballs your way.
- Independence: At its core, being financially fluent empowers you to stand on your own two feet. It means being able to make decisions, whether it’s purchasing a home, investing in further education, or planning a dream vacation, without being overly reliant on others. This independence not only fosters self-reliance but also boosts your confidence in steering the ship of your life.
The essence of financial fluency lies not just in acquiring knowledge but in applying this knowledge towards building a future that resonates with your aspirations. It's about making your money work for you, rather than the other way around. With each informed decision, you pave the way towards financial freedom, stability, and independence, pillars of a fulfilling life.