April is National Financial Literacy Month, a time for youths and adults to focus on their financial future and well-being. An estimated 3.4 million high school students will graduate this spring, and while they may be well-versed in math, English and science, many are often ill-equipped with knowledge about finances. Initially promoted by Jump$tart Coalition as Financial Literacy for Youth Month, the awareness initiative transformed in 2000 to National Financial Literacy Month to be more inclusive and encourage financial literacy skills to U.S. consumers of all ages.
Financial literacy is a broad topic and covers multiple aspects that contribute to positive financial well-being. According to the Consumer Financial Protection Bureau, financial well-being is best defined as:
- The ability to meet all financial needs today and over time.
- Feeling secure in your financial future.
- An ability to absorb a financial shock.
- Having the financial freedom to make choices and enjoy life.
According to BBB’s 2019 report Exposed to Scams: What Separates Victims from Non-Victims, consumers with low financial literacy levels are more likely to lose money when engaging with a fraudulent business. A high financial literacy level can best be described as confidence in understanding financial concepts, including saving, investing, debt and other elements that lead to an overall sense of financial well-being and self-trust. Often, the best way to begin and maintain positive financial habits is to create and follow a budget. However, research conducted in 2021 by The Harris Poll on behalf of the National Foundation for Credit Counseling (NFCC) and Wells Fargo found that less than half (44%) of the general population have a budget and keep close track of how much they spend on food, housing and entertainment.
According to the FTC’s Consumer Sentinel Network 2021 Data Book, fraud and identity theft reports across the United States continue to increase significantly. In the past five years, the number of fraud, identity theft and other reports submitted to the FTC has increased 96.1% to over 5.7 million in 2021. While the tactics of scammers and con artists are constantly evolving to overcome programs and systems focused on preventing their impact on the marketplace, individual efforts by consumers to increase their financial literacy are often the deciding factors on whether a victim loses money to the schemes of a con artist.
In recognition of National Financial Literacy Month and to assist consumers in increasing their financial literacy, Better Business Bureau provides the following tips:
Guard your personal information. In today’s digital world, protecting your personal information goes beyond shredding sensitive documents. While collecting, storing, and disposing of sensitive documents goes a long way in preventing identity theft, consumers must also evaluate their digital footprint. Consider setting up multi-factor authentication systems on your most sensitive accounts, such as your online bank, utility, insurance and medical accounts. Properly disposing of electronic devices can prevent scammers from accessing the data stored on the hard drives and is a modern equivalent of shredding services. To assist consumers in properly shredding sensitive documents and recycling their electronic devices, BBB hosts Secure Your ID Days in communities across the nation which offer free shredding services and e-waste disposal. Visit BBB.org/SYID to find an event occurring near you.
Create and stick to a budget. Following an organized budget, whether weekly or monthly, can pay dividends in the longevity of your financial well-being. Particularly for youths, practicing financial budgeting can increase confidence, self-belief and independence. Parents can help their children establish healthy financial habits by setting up a regular allowance or budget the youth will receive and by discussing their expected expenses. Once the child begins making an income of their own, they can apply the budgeting lessons learned to their finances. There are countless resources available for free online to assist in creating a budget, including the Consumer Financial Protection Bureau, which offers a budget worksheet that consumers can download for free.
Understand the dangers of debt. As tempting as it may be to purchase the latest, greatest product using a credit card or payment plan, debt can quickly spiral out of control. Take the time to understand the terms of any loans, credit cards, rent-to-own or deferred payment options offered by a banking institution or company. Review the payment’s annual percentage rate (APR) and if it includes a fixed, simple or compounding interest. Understand your debt-to-income ratio by adding up all your monthly debt payments and dividing by your gross monthly income. The higher this percentage, the more difficulty consumers may have in making monthly payments. Most mortgage companies use the 43% debt-to-income ratio mark to determine a borrower can receive a Qualified Mortgage.
