All Articles Tagged "financial literacy"
It’s easy to take for granted direct deposit or hitting up the ATM for some quick cash, but there are thousands of Americans who rely on a fragile system of money orders, payday loans and pawn shops when it comes to maintaining their finances. Tyler Perry narrates the new documentary “Spent Looking For Change” which debuted last week, and reveals some alarming statistics regarding how many Americans are handling their personal finances.
“Spent: Looking For Change” looks at the lives of four families who represent the 70 million Americans who rely on alternative banking services such as money orders and pay day lenders. The difference with this documentary is it just doesn’t discuss Americans living off of social services, it tells the story of hardworking Americans whose options have been limited by financial setbacks. Tyler Perry recalls his own struggles before he became financially secure and how he relied on services that basically exploited his situation by charging him large amounts of money to access the very little money he was making:
“I cashed all my checks at the quick cash and I was always upset about how much it cost to cash the check.”
“I had to do a lot of wiring. My mother was always pissed at how much it would cost, the check wouldn’t be but $20 and it would cost her $15.”
Perry hopes this documentary will educate and motivate people experiencing similar setbacks.
In an interview with Essence, Perry explains what he means when he uses the phrase, “It’s very expensive to be poor.”:
“Eighty-nine billion dollars is spent in these services. When you’re poor, you can’t just go to a bank if you don’t have the credit to open up a bank account. You have to rely on these services. If you go to a check cashing service, you have to pay for that. If you use one of these pre-paid cards, you have to pay for that instead of having a regular credit card. So it’s very expensive to be poor.”
He also commented on why he chose to narrate the project, sponsored by American Express:
“I applaud American Express for doing this because the truth is that nobody knows. When I put this on my Facebook page, everybody was saying, ‘Oh people just need to stop living above their means’ But people aren’t living above their means; they’re living by any means necessary. These are hardworking people who are not trying to take welfare and who are not trying to be in social systems, they are trying to work. This woman in the documentary, Tiffany, she’s a single mother, she’s a nurse, she has all these different degrees and then her mom gets cancer. Sometimes things just happen and it’s difficult to move through. So that’s why I wanted to be a part of it and show all of America that 99% of the time people aren’t making these choices, these choices are being made for them.”
Financial literacy is something that is all too often overlooked in our communities. So many people are working hard to avoid being on welfare that they end up being taken advantage of in the process. To view “Spent: Looking For Change” visit Spent Movie.
Got a little pop quiz for you, courtesy of The Atlantic:
1. If you had $100 in a savings account with an interest rate of 2 percent annually, after five years, how much would you have in the account if you left it there? A) more than $102; B) exactly $102; C) less than $102; D) don’t know
2. Your savings account has an interest rate of 1 percent each year and inflation is 2 percent annually. One year later, would you be able to buy A) more than, B) exactly the same as, or C) less than today with the money in this account?; D) don’t know
3. Is this statement true or false? “Buying a single company stock usually provides a safer return than a stock mutual fund.” A) true; B) false; C) don´t know
Here are the correct answers: 1-A; 2-C; and 3-B.
Most people didn’t know the answers to these questions. Folks were polled in Russia and 96 percent could not answer the three questions correctly and only 30 percent of Americans could. Germans (53 percent answered all three) and the Swiss (50 percent) were the top performers–even though they just made it over half.
The list of underperformers continues: 79 percent of Swedes, 75 percent of Italians, 73 percent of Japanese, and 69 percent of French did not respond correctly to all three questions. Meaning most people across the globe are financially illiterate.
These findings, which were recently published by economists Annamaria Lusardi and Olivia Mitchell, indicate how smart people are about managing their money. According to the research, women, the poor, and the elderly have the lowest levels of financial literacy. But while men better grasp the subject than women, independent of age and education, women know their shortcomings.
“For a large and fast-growing number of people, personal bankruptcy is just one bad decision away. This threat will become more critical as the global middle class continues to expand. The newfound prosperity of millions of families in the developing world could be shattered if they mismanage expenses, acquire large and expensive debts, fail to adequately protect their savings, or don’t know how to identify a tempting but catastrophically risky investment,” reports The Atlantic.
This is an important issue to address because as financial products become more diverse and more people reach middle-class status, people will need to be financially literate to handle this new responsibility.
How many of the questions did you get right?
According to The State of the African-American Consumer Report, black folks’ buying power in America is expected to reach $1.1 trillion by 2015 with black women leading what the 2013 Nielsen report labeled “relevant” consumers.
Our potential economic power cannot be confused with building generational wealth, which is the ability to own more than you owe and pass that wealth to the next generation.
The Frugal Fab 5— a collective of brown personal finances bloggers committed to inspiring and empowering women of color on the importance of money management and wealth building— are serious about making conversations about wealth as common as conversations about pop culture. Members of The Frugal Fab 5 are Tiffany Aliche of The Budgetnista, Victoria Williams and Tonya Rapley of My Fab Finance, Masha Horton Barnes of Financial Empowerment, and me, The Frugal Feminista.
If you’re looking for a place to start with your finances, follow these tips:
Get organized. Whether your goal is to improve your credit, create a budget, calculate your retirement number, or pay down debt, none of that will be possible if you don’t have a system for keeping yourself organized and streamlined. Getting organized means labeling virtual and real folders with clear names like 2011 Tax Return and 2013 Car Note. Getting organized also means committing to times that you will sit down and tackle your finances. Will you empty all of your loose change into your money jar every Saturday morning? Will you sit down and update your accounts on the 1st and 17th?
Set realistic goals. If you have $100,000 of student loan debt and you earn $55,000 a year, you are setting yourself up for failure to think that you will be able to pay it off in a year. Instead, think realistically about the debt. On the one hand, you want to ensure that you are being aggressive with repayment. On the other hand, you want to avoid “debtors fatigue” where you feel deprived and cope by engaging in high levels of consumption.
Be willing to make lifestyle adjustments to increase your income: If you are “time poor” and know that a second job or side hustle will be too overwhelming, then the only way that you are going to make extra money is to downsize how you currently spend, barter with a fellow frugalista, and monetize your unwanted items. Big lifestyle adjustments may include moving to cheaper city, living with your parents, or selling your car.
Know your stats: The journey to financial freedom begins with knowing where you start in all areas of your financial life. Make sure you know much you earn to the penny. Know the number of student loans you have, whether they are subsidized or unsubsidized, and the amount of interest accrued each day. Educate yourself on your credit scores from each of the three major bureaus: TransUnion, Equifax, and Experian. Know how much money you need to have all of your monthly basic needs covered. Calculate how much money you want to save and invest annually. When you know your stats intimately, you know what next steps make the most sense and get you closer to your financial goals.
Not only is April a month known for showers, Easter, and Passover, but (as we mentioned earlier) it’s also Financial Literacy Month! In celebration of everything monetary, here are ten important, and basic keywords that you should store away in your lexicon in order to be financially aware.
April is Financial Literacy Month. As a personal finance coach, it is one of my favorite months. I get to talk about the power of financial literacy and by default, the cost of financial illiteracy. In working with women, I have noticed they stay in financial ignorance — not because they are resistant to improving their finances. They stay ignorant and broke because they are afraid to ask basic questions for fear of looking dumb, afraid to voice uncertainty or confusion.
But when it comes to elevating our financial acumen, we have to ask questions. And the more basic, the better. A solid financial foundation that is built on the mastery of rudimentary concepts and facts will allow you to easily incorporate the more complex ideas into your fiscal schema.
So, in honor of Financial Literacy Month, here are answers to some of the questions that I get on Twitter, Facebook, and via email. There is no shame in not knowing because when you know better, you feel and do better.
Q. What type of economy does the United States have?
A: Technically, the United States is said to have a mixed economy because both privately-owned businesses and government play key roles in its growth. It, however, moves and acts like a free market or market economy. A market economy is characterized by an emphasis on private ownership rather than government ownership; private business produces and distributes the majority of goods and services in the country. What also makes the American economy free market in nature is its belief in the power of supply and demand to determine the prices of goods and services. The prices of goods and services, in turn, inform businesses what should and should not be produced, making way for the entrance of businesses “competitive enough” to produce and the exit of businesses unable to compete in the free enterprise system.
Q: What is the Federal Reserve? Why is it so important?
A: The Federal Reserve System is the central banking system of the United States. The Federal Reserve is responsible for the country’s monetary policies and decisions, which include monitoring, managing, and controlling the supply of money and trading it in the foreign exchange markets. The former Chairman of the Federal Reserve was Ben Bernanke. The current Chairman of the Federal Reserve is Janet Yellen, the first woman to hold the position.
Q: What is difference between and stock and mutual fund?
A: A stock (also known as an equity or a share) is a portion of the ownership of one corporation or business entity. When you buy stock in a company, you have the right to a portion of the company’s earnings and are subject to mitigating its losses. Mutual funds, on the other hand, is an investment made through fund managers who are responsible for a group of investors’ pooled money. Mutual funds provide diversity because it allows for investment in a number of investment tools (i.e. stocks, bonds) and allow the investors to have ownership in several companies.
Q: What is an IRA? What is the difference between a traditional IRA and a Roth IRA?
A: IRA stands for “individual retirement account.” A traditional IRA is an account that allows individuals to make investments with tax-deductible contributions. This money can be invested in stocks, bonds, mutual funds, or other investment vehicles and grow tax-free until the person is 59 1/2 years old. Penalties are imposed for withdrawals made before this time. After 59 1/2, account owners are permitted to make withdrawals, but must make withdrawals by 70 1/2 years old. The withdrawals will be taxed at your current tax rate.
On the other hand, contributions to the Roth IRA are made with after-tax dollars. They also are not deductible on your tax returns. Since you have paid tax on your money upfront, withdrawals from the Roth IRA will be tax-free. Additionally, unlike traditional IRAs, there is no distribution requirement (i.e. withdrawals) and individuals can make contributions to their IRA after they are 70 1/2 years old.
Q: What is a “rule of thumb” in terms of creating a budget?
A: There are different ways to allocate money for a budget. The most basic I have come across is the “50/30/20″ budget. Fifty percent of your income goes to “must-haves” (i.e. food, shelter, education, transportation), thirty percent goes to “wants” (i.e. clothes, travel, entertainment), and twenty percent goes to savings. (i.e. retirement, emergency fund, college fund)
As black women, we tend to be the heads of households, chief breadwinners, and decision makers in our communities. If we have all of this power, we have to ensure that we have the know-how and financial expertise to lead our people in the right direction.
Kara Stevens is the founder of the personal finance and lifestyle blog The Frugal Feminista, an online home for financial empowerment, girl power, and juicy living. Connect with her on Twitter@frugalfeminista
The unfortunate truth is that many of us don’t have much in the way of financial literacy. Unless your degree was in finance, many of us are pushed into adulthood with no clue how much damage our student loans can do, how best to invest our surplus income, effective ways to save for retirement, and on and on the list goes. We are suddenly expected to understand how to fill out a slew of incomprehensible insurance or tax forms, but how?
Try these three tips for rounding out a very important part of our education:
1- Attend classes or programs. For example the Institute for Financial Literacy is a nonprofit organization whose mission is to promote effective financial education and counseling. Through this institute you can expand your knowledge through conferences, classes, articles and more. Another site is the U.S. Treasury’s MyMoney.gov, which hosts a wide range of basic money tips.
2- Read books and magazines. Popular books include: The Little Book of Common Sense Investing by John Bogle; Risk Less and Prosper by Zvi Bodie and Rachelle Taqqu; and The Money Book for the Young, Fabulous and Broke by Suze Orman.
3- Complement your education by watching financial shows, adding a visual aspect to your repertoire. The Suze Orman Show touches on personal financial issues and includes tips as well as a segment on what viewers can afford. Squawk Box, considered a leader in market news and highlights stock market trading each day. Kudlow and Company, hosted by Larry Kudlow and touches on a range of topics including insights on the economy as a whole. All are on CNBC.
Maurece Jones took the stage at the New York Stock Exchange, the heart of Wall Street. A few floors away, a mostly-male coterie of executives from the Mexican airline Volaris rang the opening bell on the exchange floor. But on the seventh floor, Jones told an audience of mostly women about the circumstances that led her to Dress for Success, the organization known for providing underprivileged women looking to enter the workforce with suits to wear. The group actually does much more, stating in its mission that it aims to “promote the economic independence of disadvantaged women.” On Wednesday morning, the group was hosting a “power breakfast” to raise awareness and funds for its Financial Literacy Program.
In a letter to her mom that she wrote in lieu of a speech, Jones said she joined Dress for Success in 2011, the same year her mother passed away. After completing the 13-week financial literacy program, Jones said she felt “armed” with the knowledge to go out and take care of her economic life. More than that, she credited the tight-knit group of women with helping her through a difficult time of grief.
“They made sure I was OK,” Jones told us after the event wrapped up. The group provided “check ins” to make sure she was coping. “When you get depressed, you spend more,” she said.
Nowadays, Jones says she has a whole new perspective about money. She says she thinks about the long term cost of things that she buys on her credit card to determine “is it a want or a need.” And when she’s thinking about buying those black shoes she doesn’t really need, she’ll “get quiet to block out the noise.” Sometimes she’ll just leave the store, to help clear her mind and come to terms with the fact that she doesn’t need to spend her money.
The Financial Literacy Program, which serves the Professional Women’s Group (PWG), launched in 2008. According to a press statement, 100 percent of the program graduates have made upturns in their financial habits after participating. Amy Tashjian, the East coast director of operations for Dress for Success, said the most recent group saved more than $8,000 in an emergency fund and paid off more than $3,000 in debt during their 13 weeks. Dress for Success is in 130 cities and 15 countries. PWG hopes to expand to 30 affiliates in the coming year.
“You control your power. Money is power,” Joi Gordon, CEO of Dress for Success Worldwide told MN Business. The Financial Literacy Program shows women that they can make better choices, teaching them how to get the most from what’s being offered. For instance, she says, many women don’t sign up for a 401(K) when it’s offered at their job, effectively “leaving money on the table,” more if their company has a matching program.
And in terms of higher education, people in general are leaving grants and other funding opportunities untouched, which could keep them from having to take out pricey student loans. “Education is the key,” she said. We took that in a twofold way — both a college education and a financial education, both as a means of “moving out of poverty.”
More than just paying off debt and getting a job, the Financial Literacy Program is meant to teach women about asset management. During her time at the podium, Tashjian said that a woman learned valuable asset management lessons that helped her save her home from foreclosure.
A woman’s top financial concern is saving up for retirement, according to the CUNA Women’s Financial Survey. The study finds that 401(k)s are the most favored; 45.3 percent of women have contributed to a plan. Pension plans follow closely in second place with 35.8 percent of women participating in the program. Forty percent own more than one retirement plan. The fervor over retirement plans are due to the worry that many women feel over their financial security at old age, reports Credit Union Times.
In addition to retirement, women would rather save their hard-earned cash for long-term goals such as education and homeownership rather than investing in a car or paying for a vacation, the study finds.
When it comes to women and men, here’s a tidbit: A new survey finds that nearly 30 percent of workers who make more than $750,000 annually won’t retire until the age of 70. Fifteen percent of wealthy workers say they won’t retire at all. On the flip side, only six percent of those earning less than $100,000 plan to retire over the age of 70.
Although men are thought to be more financially literate, women are more likely to engage in practices, like budgeting, that are advisable for retirement. But despite the fact that 46 percent of the surveyed women co-manage their household finances, more than half of the surveyed women have no confidence in their financial knowledge and ability. This lack in confidence was strongest in the study’s youngest demographic — those born from 1980 to 1993 — where nearly 60 percent had no faith in their money management.
“Our findings indicated that women take all appropriate measures to be confident in their financial literacy but lack the reassuring knowledge to have confidence in how they manage their finances,” said Paul Gentile, Executive Vice President of CUNA. Most women in the survey reported having six months worth of savings in case of unexpected expenses. A large number of women also balance their checkbooks and pay credit card balances in full every month.
Further confirming that the women’s low self-confidence is unwarranted, new research finds that 34 percent of women are setting budgets while only 28 percent of men are doing likewise. “[A] monthly budget […] is critical to efficiently manage any finances,” said PR Newswire.
The Woman’s Financial Survey recruited 1,042 women across the country with respondents born from 1920-1980.
While the Great Recession has scarred laid-off workers and struggling businesses, it has had some upsides. The recession forced everyone to grab the reigns on their finances. As a result, there was an upsurge financial literacy, especially among women, to endure the stagnant times, reports USA Today.
The recession proved to be a rude awakening for many Americans with frivolous spending habits. Compelled to pull through the difficult times, women have been making money-savvy investment decisions. Twenty percent of women, according to Allianz Life’s 2013 Women, Power, and Money study, now have a sturdy grip on their cash. Since the first survey Allianz issued eight years ago, “more women in general indicated an increase in financial inderstanding and involvement,” adds USA Today.
Between the 2006 and 2013, the number of women who expressed interest in financial, retirement, and investment planning doubled from 35 percent to 62 percent, according to the Allianz survey.
With the recession causing some women’s partners to become unemployed, it was up to them to be in the forefront of money management. A Prudential study, highlighted by MN, shows that the economic stagnation expanded the “breadwinner” role to more women. Thirty-one percent of married Black women were the main providers last year.
The recession isn’t the only culprit behind women’s increase in financial knowledge. Nowadays, more women are deviating from the traditional structured path of a woman’s life. Now women are “staying single longer, divorcing more frequently, entering into same-sex relationships, and outliving men,” USA Today explains. As a result, the absence of a man has required many women to become more financially independent.
In the study, compared to the average woman who made $48,000, these “women of influence” — as USA Today calls them — make an average of $57,000 a year. The data also shows that majority of the women of influence are White and are between the ages of 45 and 54.
Among financially literate women, only one percent did not save up for retirement; 12 percent of the other respondents are not remotely prepared for their financial future.
“We had a worst-case scenario a couple years ago, and it is a wake-up call to a number of people, women in particular,” said Lisa Hanson, a Philadelphian financial planner, “It’s important (for them) to feel a sense of security.”
As the end of spring dawns and summer approaches, many high school students proudly wear their caps and gowns while crossing the stage with their sights set on college. Hoping for a brighter future it seems almost inevitable to acquire debt to finance your college education. The Chronicle of Higher Education estimates that over 60 percent of the 20 million students who attend college each year borrow money annually to help cover costs.
US student loan debt is now looming at over $1 trillion, and we are forced to evaluate the role student loan debt is playing in our quality of life. A study conducted by the Federal Reserve Bank of New York found that 30-year-olds with student loans are less likely to have debts like home mortgages than 30-year-olds without student loans and the same is true for 25-year-olds and car loans. In addition, Pew Research Center found that the measure of debt to income for households under the age of 35 has ballooned to 1.5-to-1 in 2010 from about 1-to-1 in 2001. Meaning that most people carry more debt than the annual income they bring in.
Student debt is even having an impact on graduates getting married. A survey conducted by the American Institute of CPAs showed that 15 percent of respondents opted to postpone getting married as a result of their student loan debt.
The growing reliance on student loans along with the lagging economy and job market is creating a new breed of thirty-something that bet big on their college education and subsequently don’t have enough cash to make investments in assets that can appreciate in value. To make matters worse there is a debate on Capitol Hill about whether or not the interest rates for government-issued student loans will double this July. The 3.4 percent federal student loan rate is expected to go up to 6.8 percent later this summer. Students and graduates with existing student loans would not be impacted, just those applying for future federal loans. With borrowing rates for banks so low, it’s a wonder why student loans are expected to be issued at a premium.
On the bright side, the President along with members of congress are discussing ideas to keep rates down. However, most of the ideas are based on linking student loan rates to market rates like the treasury rate, which would mean student loans could fluctuate up to as much as 10.5 percent, considerably more than the aforementioned 6.8 percent. Some have even proposed allowing rates to be adjustable for the life of the loan, similar to the adjustable rate mortgages that aided in the financial crisis.
The uncertainty over interest rates and the swelling debt being accumulated by current and prospective graduates is having a direct impact on household spending and an impact on the overall economy. Kevin Carey, the director of Education Policy Program at the New America Foundation, a research group in Washington says it best in The New York Times, “It is a new thing, a big social experiment that we’ve accidentally decided to engage in. Let’s send a whole class of people out into their professional lives with a negative net worth. Not starting at zero, but starting at a minus that is often measured in the tens of thousands of dollars. Those minus signs have psychological impact, I suspect. They might have a dollars-and-cents impact in what you can afford, too.”
Now more than even is it important to teach our high schoolers and prospective college students the importance of finding ways beyond loans to finance education. Students may also want to consider going to state schools or community colleges to keeps costs low, or opting for the less prestigious school offering financial support rather than an Ivy League school that won’t give a dime.
We took a look at what we should be teaching our girls about financial literacy. What should we be doing to manage the student loan crisis we’re falling into?