Are Millennials Financially Literate?
Financial literacy is a key component to success.
According to PWC, when Millennials were tested on financial concepts, only 24% demonstrated basic financial knowledge and nearly 30% are overdrawing on their checking accounts. Are millennials on the road to going into debt because they lack proper money management skills?
Millennials may want to consider following these 5 steps to help better manage their finances.
Understand the difference between good debt and bad debt
It is important to first “demystify” the word debt. This can be one of the many reasons why Millennials struggle to understand what debt exactly is. Debt means you owe someone, or something money – bank, friend, family member. No one is really “debt-free.” Most people have a mortgage, car loan, credit card, student loan, etc. All debt is good debt until it becomes unmanageable. For example, if you borrowed $50,000 from your parents and you are paying it back comfortably with no complaints from them, then that is good debt. If they are harassing you for the money every week and you are missing payments, then this is bad debt. If you learn to manage your debt and educate yourself on it, then you are one step closer to being financially literate.
Research & Learn Personal Finance
Consider sitting down and doing research a couple times a week to gain a better understanding about personal finance. For example, ask yourself if you know how to apply for a loan or apply for a credit card. As a millennial, it is important to understand the difference between a savings account and a checking account (and why it’s necessary to have both). Since you are in the beginning of building your credit history, then you may want to research how credit works, how to write a check, how to obtain your credit score, and how to maintain a good credit history.
Seek Out Programs to Expand Your Access of Financial Literacy Education
You might want to consider asking your employer if they offer free financial literacy programs or seminars. You can even seek out opportunities at home! Try to take some time to research events and seminars to help you get a better understanding of money management. This can be at your local college, banks/credit union, nonprofit housing organizations, employee assistance programs, or religious organizations.
Develop a Budget and Try to Stick With it
The first step to managing your finances effectively is working with a budget. Once you get the hang of understanding how your money works and your income-to-expense ratio, then you are on the road to becoming more financially literate! As a millennial, you want to try to live within your means! Have limitations, learn when to say “no,” and know much you can and can’t afford. If you struggle with budgeting, consider signing up for an online budget tool like Budget Jewel to help you better understand the way it works.
Figure out Your Financial Goals and How You Will Obtain Them
This step goes hand-in-hand with your budget and will allow you to stay on top of your finances so you don’t fall into any kind of debt. Consider asking yourself what your financial goals are for the future. This can be saving up for a car, wedding, house, paying off student loan debt, go on a vacation, etc. Your goals and finances should run on parallel tracks and be revisited regularly to make sure they stay on course.
As a millennial, it is important to understand money management at a young age. You don’t want to fall into deep debt because you were lazy with your money and didn’t take the time to become financially literate. Know when your bills are due, how much they are and understand your income to expense ratio. Once you become financially literate, you will be surprised to see how much money you will save! Are you a millennial? Do you struggle with money management? Leave us your comments below!