Financial literacy can be defined as an individual’s ability to understand his or her personal finances and make informed decisions about their money. In other words, can you adequately identify the strengths and weaknesses of your financial actions and planning? Have you set financial goals and set out on a path to reach (or surpass) them? Experts estimate that only one fifth of American adults are financially literate.
Granted, there is vast uncertainty with regard to income, security, and of course, health during the COVID-19 outbreak. But getting a grip on your financial situation today could not be more important. Don’t let fear in today’s climate stop you from taking the first steps towards understanding how your finances today will hold up during and after the crisis.
For so many people, the economic downturn from COVID-19 has directly reduced their income and ability to pay their bills. Improving your financial literacy today will enable you to determine whether an existing “emergency fund” will help you through the crisis, or perhaps you will need to tap into this money in the coming weeks to pay the mortgage or rent. It certainly raises once again the importance for this type of savings.
Improving your financial literacy will enable you to quickly review unnecessary charges related to your credit cards or bank accounts. It encourages you to requote your insurance policies to see if you can obtain better rates. This is very important today, as auto insurance companies are currently calculating rebates for existing customers, because so many fewer drivers are on the road as part of sheltering in place.
With so many people living paycheck to paycheck (or today, from unemployment or stimulus check to the next one), the ability to budget, take charge of debt, and to save for the future could not be more important. Financial literacy is the road out of the crisis for many Americans.
Here’s a quick set of questions to test your own financial literacy:
Can you develop a monthly budget to account for all of your expenses, debts, income, and savings? What are your living expenses for the next 3 to 6 months, and can you handle these during the current situation?
Are you able to reduce your debt to zero or significantly reduce it from one month to the next?
Do you have an emergency fund? How long will it last in today’s economic climate? What will you do if a health or life event required additional spending?
Do you understand the various types of insurance that can protect your finances and investments?
Do you understand the difference between an investment and insurance?
Improving your financial literacy will bolster your ability to weather the COVID-19 crisis, and any other challenging scenario that may happen in the future. We’re here to help. Contact the Isakov Planning Group to learn how to increase your financial literacy and take action in this difficult time.