What is Financial Literacy?
April is Financial Literacy Month – a time to review your finances and learn more about important topics like budgeting, taxes, managing student loans, and more. It's also a great time to start reviewing and learning important skills that will help you for the rest of your life– no matter how young or old you are.
The Basics of Financial Literacy
Every personal finance plan starts with budgeting, a concept that can be taught from an early age. More than just balancing out your income with your expenses, budgeting can help you understand what you spend and where, reducing anxiety and helping you to invest in what's most important to you. Budgeting can be extremely useful for managing expenses related to:
The easiest way to get into budgeting is to first start with your total monthly income. Write out the most important expenses first, such as rent, utilities, groceries, etc. Then, write out your other expenses that you typically have in a month (nights out, travel, luxuries). After estimating how much you spend on each item in a month, it can be helpful to visualize how you use your money by categorizing them into needs and wants. One common budgeting strategy is the 50/30/20 rule, where you spend 50% of your after-tax income on needs, 30% on wants, and allocate the remaining 20% to savings. We often don’t like to think about how we spend money until we have to, so budgeting is a great solution for reducing the fear and anxiety surrounding personal finance.
When looking to improve your personal finances, it is important to set a goal or goals for yourself to work towards. However, in order to see true progress and avoid getting overwhelmed, these goals must be realistic and specific. Setting lofty goals can be great for motivation, but the disappointment of not being able to reach them can have negative effects on your finances. Instead, focus on making goals like increasing your monthly savings by 10% by cutting down on non-essential spending. This goal is measurable, specific, and realistic. Another goal that many parents could think about is setting aside a certain amount of money each month into a college fund for their children. Due to the cost of many colleges, this goal requires parents to evaluate their spending habits. Having a clear goal in mind can help with motivation towards achieving your objectives.
Plan for Retirement Early
Another strategy is to start planning for retirement as early as possible. Setting up an Individual Retirement Account (IRA) is a popular option, as it is a tax-friendly way to build your retirement savings during your peak income-earning years. IRAs help people build their assets in many ways, with key benefits including a rollover of 401(k) retirement plans, automatic renewal, and the ability for tax-deferred earnings. Even though many working professionals don’t retire until their mid-late 60s, building up a retirement savings plan is crucial for being able to enjoy your retirement, and not have to work longer than you intended.
The Benefits of Early Financial Literacy
Early financial literacy has become an important part of education in many schools. By teaching children the value of money and instilling proper money management skills early on in life, they are more likely to enter adulthood equipped with the knowledge and tools to lead financially stable lives.
In addition to school programs, you can start money conversations at home, too. A great way to do this is by instituting an allowance. After outlining expectations and deciding on what they will earn and how, you can use situations as teaching moments to talk about the importance of saving, the cost of things they may want, and help them make decisions about spending.
Katahdin Trust is Here to Help
Banks like our bank welcome the opportunity to participate in financial literacy education for schools and organizations. We offer both online and in-person presentations, and have partnered with several local organizations to provide financial education including Junior Achievement, Jobs for Maine’s Graduates (JMG), Aroostook Aspirations, and schools grades K-12 across the state. For more information about Katahdin’s financial literacy lessons, and access to free lessons and videos for grades K-8, visit our Financial Literacy page.
We know that you need comprehensive and competitive services to help meet your financial goals in today’s market. At Katahdin Trust, we will make personalized recommendations designed to help exceed your objectives and increase your financial literacy.
Our team is dedicated to helping the members of our local communities create plans and goals to help them become more financially literate at any age. At Katahdin Trust, we believe that there’s a solution for everyone. Let’s find a way, together. Request a customized presentation for your school or organization today!
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