The Financial Planning Standards Council FPSC, a non-profit association that promotes and enforces professional standards for financial planners through the Certified Financial Planning designation is promoting November as Financial Literacy Month.
Fifty years ago we could do very well with a general high school diploma – now a specialized college or university degree is often needed to achieve a reasonable level of income. At the same time, just knowing how to save money and filling out a tax form was all that we needed to know in days of yore. Times have changed, now we need to know a lot more!
The statistics suggest that although we are wealthier individually than many of our parents, most of us are still not entirely comfortable with many of the important aspects of managing our money today. Our children are not learning any more than we did. The complexity of money management has increased and it’s not getting any easier to understand – those that don’t increase their financial proficiency will be at a disadvantage.
The changing earnings, tax, investment environment, and importance of financial security to our lives, and our children’s lives, mean we need to get serious about our level of financial literacy. We need to become comfortable in the various aspects of money and its management and increase our confidence and ability to make good financial decisions and help our children do the same! Our financial decisions need to be based on a sound understanding of basic information and principles, rather than emotion or some so called experts strategy for getting rich in 6 easy steps.
The confidence we’ll gain in really understanding our money has the potential to increase our happiness by eliminating the fear of managing our growing estates and insuring our finances truly become one of the resources we use to achieve our happiness.
The following are seven key areas of basic money management skills every individual needs to strive to have a basic understanding of in order to develop money confidence.
Cash Management – How is a cash flow plan prepared for your household?
Tax Planning – What is a tax bracket? Bonus question – What are the three types of income and how are they taxed?
Risk Mgt – What’s the difference between T10 and permanent life insurance?
Credit Mgt – What’s a FICO score and what impacts this number?
Investment Planning – What are dividends and how would you get them?
Estate Planning – What happens if you die without a valid Will?
Retirement Income Planning – How much income will you need when you stop working and where will it come from?
If you found these questions difficult to answer, you are not alone! Understanding the answers to these questions would go a long way to help you become significantly more confident in evaluating the many options you have for your money. If one of these areas is not important to you – it’s likely your children would benefit from the knowledge and who better positioned to help them!
This newsletter has been and will continue to be committed to increasing the financial literacy of our readers. In future editions we will be including an article each month dealing with one of these topics and provide the basic information every individual needs to understand along with links to more in depth understanding. I encourage you to read, seek to understand, and distribute to your children and friends.
Once it was about Reading, Writing and Arithmetic, now we also need to understand, Cash Flow, Taxation, and Investment!