The COVID-19 pandemic coincided with an increase in people investing in the stock market using platforms like Robinhood. At the same time, various cryptocurrencies became popular.
But how well do people understand the world of finance, not to mention making a budget and managing money? A poll by Investopedia for Financial Literacy Month found that there are a number of gaps.
The poll found that 57% of adults are investors, but just one in three say they have advanced investing knowledge. Only half said they think they deeply understand managing spending, keeping a budget, paying taxes, and saving.
“One of the issues that can get in the way of good financial decision making is unfamiliarity with our own motivations,” Emily Koochel, senior financial planning education consultant at eMoney Advisor, told ConsumerAffairs. “Many of us do not take the time to self-examine our own financial lives and thoughtfully consider what motivates us.”
Set goals and make a budget
Koochel says it’s important to set goals and devise a budget plan to get there. Her advice is to make sure decisions about money align with those goals.
Taylor Kovar, a certified financial planner and co-host of The Millionaire Marriage Podcast, urges people to spend some time learning more about personal finance by either reading articles or watching YouTube videos from credible sources.
“Try to implement one change per week,” he told us. “Give every dollar a job and let it work!”
Kovar says parents should try to take an active role in their children’s financial education. He says even very young children can begin to grasp basic financial concepts.
“While out grocery shopping, talk about the budget and how each item picked affects the budget or why one cereal costs more than another type,” Kovar said. “We also discuss why gas prices at one store are higher than the one across town. There are lessons all around us if we just look for them!”
Rod Griffin, senior director of Public Education and Advocacy for Experian, says a credit score will tell a consumer where they stand financially. He tells ConsumerAffairs that to understand the score, a consumer needs to delve into their credit report.
“If a consumer would like to take steps to raise their credit score, understanding what is on their credit report can help them determine exactly what they need to improve in their credit history to raise their score,” Griffin said. “Consumers can access a free score and free report at Experian, along with other free financial resources such as Experian Boost.”
Experian Boost is a service that allows consumers to include recurring, but non-debt payments for use in determining a credit score. For example, including utility bills and streaming service payments almost always raises a credit score.
Get out of debt
Jay Zigmont, a certified financial planner and the founder of Live, Learn, Plan, says the most basic goal should be getting out of debt. Debt, he says, is the biggest thing holding most people back because it is “stealing from the future.”
“Relying on credit cards and other debt may be the biggest mistake people make with their money,” Zigmont told us. “Putting things on a credit card is effectively taking out a loan at 16%+ interest. Credit cards also allow you to live outside your means.”
When you live outside your means, you spend more money each month than you have coming in. It’s not hard to see how that isn’t sustainable. Koochel says that can usually be traced to an error in “mental accounting.” She recommends that consumers carefully track their spending each month so they can find areas where they tend to stray from their spending plan.