A lot of our financial decisions come down to whether we should spend money or not. Looking at our finances as a whole, that should be a simple decision, but most of us aren’t very good at keeping our spending under control or adhering to our budget perfectly.
April is Financial Literacy Month and today we’re focusing on what we need to know to make smart financial decisions.
Knowledge, Confidence, Value
The Consumer Financial Protection Bureau (CFPB) thinks there are five things that lead to a person making correct financial decisions.
1. Knowing how to do it.
2. Feeling confident doing it.
3. Believing that it is valuable.
4. Having the opportunity to do it.
5. Simplifying the process.
Financial literacy can really cover those first three pretty well. You have to know something before you’re going to do it. You have to feel confident in doing it and you have to think it’s valuable.
Financial knowledge really is just the first step. For example, let’s take budgeting. Knowing how to compare your income to your expenses and plan out where you’ll be spending money covers most of the budgeting knowledge people have. How many of us feel confident budgeting? Especially if you’re just starting to get a budget together, how confident are you?
Finally, most people probably believe a budget is valuable in some form or another, but if you have never budgeted that’s more of a hypothetical than knowing how much value a budget really can have in your life (It can save you 10 percent of your expenses pretty easily and tracking your expenses daily can save another 10-20 percent).
Again it’s not just financial knowledge that leads to good financial decisions. Feeling in control of your money and looking to the future when combined with financial knowledge lead to better financial management.
Learn Good Behaviors Too
Finding the right information to learn what you need is a good first step that produces lasting results. The FDIC, window sticker provider to banks everywhere, has found that participants in a program that covered the basics of checking, saving, budgeting and credit showed significant improvement in confidence and financial behavior even up to a year after the program finished.
The more financial information people have the more likely they are to participate in retirement saving programs, contribute more to their retirement and have a higher overall saving rate.
That’s all well and good, but financial knowledge doesn’t get you everything. Part of what makes financial literacy important is it prompts us to change our behavior and that isn’t easily taught in a book, blog post, or even a class. For instance, credit card debt trouble is consistent over all financial knowledge levels, but people who are able to delay gratification or have a long-term outlook have fewer credit card debt problems.
So this Financial Literacy Month, if you have already learned something new, perhaps it’s time to look at your behavior or your outlook and find something that will help you look at your finances and make the right decision more consistently.
Mvelopes gives you the information you need to adjust your budget or adjust your behavior once you see where you’re spending your money and where it doesn’t match up with what you planned. Get started with Mvelopes today and make the most of Financial Literacy Month.