Financial literacy is knowing how to make smart decisions with your money. And sadly, too few Americans understand how to create a budget, manage a credit card, or save and invest for a major goals such as a first home or retirement. For example, a recent survey of adults showed that they could answer only 50% of 28 basic money questions in the 2022 TIAA Institute-GFLEC Personal Finance index.
The U.S. Financial Literacy and Education Commission has issued five building blocks of financial literacy (“My Money Five”) that everyone should master when making day-to-day decisions about their finances.
• Earn. Your ability to earn a living over many decades is probably your biggest financial asset. Take the time to understand how your pay and benefits can become the backbone of your long-term financial plan. You should understand how various deductions and withholdings reduce your take-home pay in the form of federal, state and local income taxes, Social Security and Medicare taxes and payments for health insurance that may be offered by your employer. Be sure that you are taking advantage of employer’s matching contribution to your 401(k) account, as that could mean a faster and bigger payout when you retire. And remember to invest in your future with education and training opportunities inside and outside of work.
• Save and invest. Everyone should have a future financial goal, such as buying a house or funding retirement to last through your expected lifetime. First, you need to have an account at a bank or credit union and pay yourself first by putting some money aside for your future before you write any other checks. (Automatic transfers are great for this purpose.) Having a budget and tracking your spending can help you identify available dollars to save and invest, whether it’s in a tax-deferred retirement plan, in a tax-advantaged Roth IRA or in a taxable brokerage account. There are good reasons to spread your assets across each of…
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