Learn Financial Literacy

Financial literacy and good money management habits are essential today, with so many investment and financial products, new consumer products and services, and temptation awaiting at every corner. Financial literacy is particularly important for young Canadians and helps avoid major money problems such as credit card debt, bad credit, excessive debt, foreclosure, repossessions, and bankruptcy.

Benefits to Financial Literacy

There are many benefits to developing good financial habits, one being that knowledge of basic concepts helps avoid costly mistakes. In fact, good financial discipline, proper planning, and budgeting help achieve short- and long-term financial goals without stretching too far and incurring excessive debt. Retirement planning is also important and the sooner you start, the better. The problem is that retirement planning requires knowledge of financial concepts that help make projections and predictions about future variables. These include pension benefits, inflation, and income growth as well as concepts such as present discounted values.

Debt literacy is also important and is associated with different financial experiences such as using a checking account, investing in mutual funds and stocks, using pawn shops, borrowing from payday lenders, and making purchases on a credit card. Financial decisions, whether saving or taking out loans, are interrelated, which makes debt literacy essential. For instance, consumers who use savings accounts and retirement planning instruments are more likely to stay away from debt. By the same token, customers who always pay the balance in full are less likely to use payday and other high-interest loans compared to those who pay the minimum only. This means that financial and debt literacy (and illiteracy) can have an effect on different aspects of your financial future. They are associated with participation in the stock market, investing, wealth accumulation, and retirement planning, and the results depend on your money management skills. A rich set of financial experiences and good knowledge of basic concepts contributes to wise money management and planning.

What Can Be Done

Workshops and programs that involve money-related activities can be of help. In fact, reports show that students who participate in such programs show better budgeting and money management skills and adapt healthy budgeting and financial behaviors when facing different financial scenarios. Workshops also help to this end and enable students to develop a better understanding of financial and investment solutions and money management skills. This is particularly important in difficult economic times (http://www.apa.org/helpcenter/resilience-tough-economy.aspx). Financial literacy and budgeting lessons benefit students in many ways and teach them how to save and spend wisely. This is particularly important for young people as many have little financial knowledge and exposure to credit. High school students can be thought more complex subjects and issues such as the pros and cons of borrowing, high- and low-risk investment solutions, effective and proper budgeting, the fine print on loan and credit card applications, the consequences and causes of foreclosure and bankruptcy, and so on. Programs can be offered as part of the high school curriculum or in the form of professional development programs. Basically, the goal is to teach students how to stay out of financial trouble, plan ahead, and improve their financial situation. Different tools can be used to this end, including financial goal and financial priorities worksheets, debt load and net worth worksheets, webinars, expense worksheets and records of daily expenditures, and many others. Expense worksheets, for example, are handy in helping students to develop and stick to a spending plan while financial goal sheets divide goals into categories - long-term and short-term, trackable, rewarding, achievable, measurable, and specific.

Teaching Financial Literacy to Teens: Credit and Debt

Teens are often referred to as "digital natives" because they are born into the digital age. Their digital age began with the invention of the computer and the Internet. And the digital age is just beginning. Today's teens are accustomed to accessing the Internet through their cell phones, and their primary means of communication is likely to be the Internet, not the telephone. They also pay their credit card bills online. It is not unusual for a teen to have their own email account and to send and receive messages on their own cell phone. Teens also have the latest technology to access their social networks, and some of them already have a credit card with a co-signer.

Financial literacy is of key importance today, with so many financial products on the market. Teens with good money skills are better prepared to deal with financial challenges and make informed decisions. It is important to start as early as possible because gaining knowledge and the right tools is a lifelong process. Adolescents learn how to budget, manage debt and credit, use credit cards responsibly, save for short- and long-term goals and projects, and a lot more.

Money Skills: Managing Debt and Credit

Practical money skills help young people improve their financial strength. Students learn more about important concepts such as identity theft, debt, credit history and score, and plenty more. Understanding how credit cards work means learning about rewards and incentives, grace or interest-free periods, fixed and variable rates, over-limit and annual fees, etc. Teens know how to keep track of purchases, payment histories, due dates, balances, and available credit. Having a very good or excellent credit score and spotless credit history is also important in that customers with good scores have better chances of qualifying for mortgages, personal and auto loans, and credit cards with beneficial terms. Students learn what a credit report is, how to request a copy and view their file, who can use their data, etc. They learn about credit reports and details such as overdue payments, loss data, provider, type of credit facility, cardholder contact details, address and name, and others. When it comes to third parties accessing information, financial institutions can access the customer's file to monitor debt levels and review credit card requests. It is also important to review one's credit report and correct inaccurate information.

Financially literate people know how to handle debt. Those with poor debt and money management skills often bounce checks, make late payments, and incur late fees. Money wise people, on the other hand, inquire about details such as fees and interest rates, term of the loan and repayment schedule, amount owed, and so on.

Tools and Ways to Improve Debt Management Skills

There are simple tools and ways to help teens develop and improve their credit and debt management skills. To avoid debt, it is important to cut back on purchases that can be considered non-essential spending. People who tend to splurge and buy on credit often fall in a debt trap. Examples of non-essential expenses include dry cleaning, alcohol, cigarettes, magazines and newspapers, sweets, rented and video appliances, etc. Lottery tickets, haircuts and hairdressing, pet insurance, gifts, and hobbies are considered non-essential spending. Essential expenses, on the other hand, are things like health insurance, medications, food, student loans, child support, essential and emergency house repairs, etc. Other examples include baby items, nappies, glasses, and car insurance. Understanding the difference between essential and non-essential spending is the key to staying debt-free. It is helpful to make a list of non-essential expenses such as the above listed and go through it occasionally. Some people keep track of everything they buy and how much they spend. This is a good way to control where money goes. Free money can be used for non-essential expenses such as charities, birthdays and holidays, sports, and so on.

Paying off debt is obviously the key to debt-free living. To this, financial advisers recommend listing priority debts such as secured loans, utility bills, rent or mortgage payments, etc. List your daily expenses as well, for example, public transport, food, laundry, and so on. The next step is to subtract your expenses and priority debts from your income. The amount you are left with is your disposable income.

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