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A recent survey by Credit Sesame has cast a bright spotlight on the financial literacy landscape, especially among marginalized communities. The findings are quite telling: while 65% of marginalized non-white individuals reported never receiving financial education, only 41% of white Americans could say the same. This gap in financial knowledge is not just a minor issue -- it's a major barrier to economic empowerment.
So, what can we do with this information? Well, for starters, understanding some core financial principles can significantly impact our lives and our budgets . Here, Richard Barrington, a financial analyst for Credit Sesame , shares five must-know financial tips everyone should learn.
1. Avoid credit card debt
According to Barrington, credit card debt is notably the most hazardous type of debt one can incur. This is primarily because credit cards are always readily available, making it far too easy to accumulate debt.
The high interest rates associated with credit cards (average of 24.74% APR as of August 2024) exacerbate the issue. Compare that to a 12.8% interest rate for personal loans, a 6.73% rate for car loans, or a 6.59% for a mortgage, and you're treading dangerous waters.
Furthermore, the lack of a fixed repayment period means that credit card debt can continue to accrue interest indefinitely, deepening the financial hole.
2. Take care of your credit score
Low credit scores can close many doors, affecting much more than just your borrowing capabilities. As the survey illustrates, over 20% of individuals with poor credit scores could not secure apartment rentals -- almost double the rate of those with better scores.
Furthermore, employers and insurance companies also use credit scores to assess responsibility and risk, which means a low score can increase job search difficulties and insurance premiums. Given these wide-ranging implications, it's crucial to maintain and regularly monitor your credit score.
3. Check your credit score regularly
Keeping a good credit score isn't a one-time task; it's something you need to do regularly. Think of it like brushing your teeth -- something you do consistently to avoid bigger issues later. A good credit score is essential not just for borrowing money but for many everyday situations, too.
For example, if you're trying to rent an apartment, landlords often check your credit score to see if you're reliable. The same goes for job hunting; some employers look at your credit score as part of their hiring process, seeing it as a sign of responsibility and stability.
Plus, having a good credit score can help you get lower interest rates on loans and credit cards, saving you a lot of money over time. By regularly checking your credit and keeping up with good financial habits, you can maintain a healthy score. This way, you'll always be in a good position when opportunities arise.
4. Pay more than the minimum on credit cards
As Barrington points out, one strategic approach to managing credit card debt is to always pay more than the minimum payment required. Credit card companies benefit when consumers extend their repayment period, as this leads to more accumulated interest. By paying more than the minimum, you can significantly reduce the lifespan of your debt and save on interest.
5. Match your loans to your purchases
When taking on debt, it's smart to consider the lifespan of what you're buying. Long-term loans should be reserved for purchases that will last at least as long as the loan period, like a house or a car. These investments hold value over time and justify the extended repayment period.
On the flip side, financing short-lived expenses, such as a week-long vacation, over several years isn't a good idea. This kind of mismatch can lead to prolonged financial stress, as you'll still be paying for something long after its value has faded. It can also limit your future financial flexibility, making saving or investing in more meaningful, lasting purchases harder.
Essentially, you want your debt repayment schedule to match the useful life of what you're buying to avoid unnecessary financial strain.
What can be done to improve financial literacy?
The survey really drives home the importance of learning about money and budgeting early on. People who get financial education in school tend to end up with higher incomes and better credit scores. It's like giving kids a financial head start. But here's the kicker: only about half the states in the U.S. actually require financial education in high school.
But don't worry; parents can still step up to the plate. Teaching your kids about managing money can prepare them for future success and stability.
Credit Sesame's findings show that this kind of early financial knowledge helps people navigate the tricky world of money much better. It's clear we need more comprehensive financial literacy programs for everyone, no matter where they come from.
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