Why is an Education in Personal Finance So Important?

There is tremendous value in education, notably a sound education in managing personal finances. Believe it or not, the world is comprised of two types of people: savers and spenders. The economy relies on both groups for growth and development. Without the spenders, commerce would grind to a halt, and without the savers, investments would not be possible and the economy would stagnate. A happy medium needs to exist between the two for an economy to develop, evolve, and prosper.

Financial literacy is something that far too many of us lack. It’s not about reading the income statements, balance sheets, cash flow statements, or general ledgers of listed companies – it’s about managing your own debits and credits effectively. The US government is currently – and constantly – embroiled in a painstaking debate about raising the debt ceiling.

Don’t Look to US Government Debt Management As a Solution

That the US economy is $19.976 trillion in debt is a shocking indictment of public funds mismanagement. If we all manage our personal finances the same way the US government manages public finances, we would have all our earthly possessions stripped away from us, and be penniless, and homeless at the same time.

Consider that the US government generates federal tax revenues of approximately $27,492 per taxpayer, the equivalent of $10,167 per citizen, for a grand total of $3, 311,338,171 in tax revenues per year. US total interest paid amounts to approximately 67% of total federal tax revenues – another disturbing statistic.

The topic of financial literacy is one which always generates considerable debate in the blogosphere, on forums, and in the media. Not only is it an invaluable life skill, it is imperative for success in daily life. This skill is particularly important during our formative years, and college years, in that it teaches impressionable minds how to manage their finances effectively.

The first step in the process of understanding the concept of financial literacy is a budget. Budgets are fixed allocations of funds to different types of expense items such as food, entertainment, rent, car and maintenance, education etc. By understanding the do’s and don’ts of debits and credits, a sound education in financial literacy is possible.

It begins in the home at an early age. Kids learn the art of financial literacy from their parents, siblings and relatives. At school, financial literacy can sharpen those skills but recent studies by the Council for Economic Education (CEE) confirm that just 34% of US states currently require students to take personal finance courses.

80% of Generation Z Are Deferring Student Loans

Given that US student loan debt, is growing fast, and is now hovering around $1.4 trillion +, it is increasingly important to understand just how devastating this can be on a personal level. For example, Generation X individuals have outstanding debt of $39,802, while Generation Z folks currently have almost 80% of their loans in deferment. In terms of overall debt, student loan debt makes up the biggest and fastest-growing component of non-household debt.

The US economy cannot hope to sustain such burgeoning levels of debt without providing a solution to students and graduates. College students emerging from their bachelor’s, master’s and PhD-level studies now find themselves more concerned about how they will be repaying their student debts than about making a purchase of their first automobile, apartment, condo, or home. The debt-riddled society that is now the US is fast becoming untenable for many people. Entrepreneurs find themselves shackled; they are unable to use their newfound skills to start up new business ventures because they are saddled with heavy student debt repayments.

Solutions for Students Seeking Assistance with Debt Repayments

It’s just as important getting into college as it is graduating from college with a reputable and useful degree. There are ways to manage debt effectively by ensuring that you are paying down as much student debt as possible while you are in college so that you will have a relatively hassle-free experience post-graduation. Part-time employment, grants, scholarships and careful money-management will eliminate a lot of the burden. Naturally, the best debt is debt that is invested in real estate and education. Credit card debt needs to be minimized, since this is known as bad debt.

The quicker college students learn about the merits of budgeting, banking and working, the better. Credit cards with 0% APRs for 12 to 24 months are best, and they are also an effective way of building up a good credit score before you enter the workplace and seek your own domicile. Various fees such as incoming money receipt fees, overdraft fees, and hidden fees can be avoided by having a bank account in place to make payments on your debts. It’s important to understand how college debt and tuition fees can impact your personal finances from year-to-year. Always set up a repayment plan if you fall behind in your debt repayments, or try to defer your payments for your student debt loans if you are currently experiencing hardship.

4 comments

  1. This is such a toughie. Isn’t it crazy how even our own government can’t manage its bills? Some days I wonder if “the powers that be” don’t want people to receive a good personal finance education. Think of all the industries and products that wouldn’t exist if we knew how to wisely manage our money!

  2. Ms. LLC says:

    Personal finance education has always been a big one for me, and it becomes a huge no brainer when you take in to account some repercussions like the deferral rate on student loans among Generation Z.

    It seems like everyone wants to go to college to go make more money. Well, it’s going to cost money to get that education, and next to none of them can pay out of pocket! The student debt will keep on climbing, especially if people don’t understand basic personal finance such as interest on a student loan.

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