April is National Financial Literacy Month, which raises awareness of establishing and maintaining healthy financial habits. To kick off the month, let’s test your financial knowledge with a five-question sample from a quiz, Jump$tart Coalition for Personal Financial Literacy, administered to 6,856 high school seniors in 2008. They achieved an average score of 47.5%.
1. Inflation can cause difficulty in many ways. Which group would have the greatest problem during periods of high inflation that last several years?
a. Older, working couples saving for retirement.
b. Older people living on fixed retirement income.
c. Young couples with no children who both work.
d. Young working couples with children.
2. Which of the following is true about sales tax?
a. The national sales tax percentage rate is 6%.
b. The federal government will deduct it from your paycheck.
c. You don’t have to pay the tax if your income is very low.
d. It makes things more expensive for you to buy.
3. Rebecca has saved $12,000 for her college expenses by working part-time. Her plan is to start college next year and she needs all of the money she saved. Which of the following is the safest place for her college money?
a. Locked in her closet at home.
c. Corporate bonds.
d. A bank savings account.
4. Which of the following types of investment would best protect the purchasing power of a family’s savings in the event of a sudden increase in inflation?
a. A 10-year bond issued by a corporation.
b. A certificate of deposit at a bank.
c. A twenty-five year corporate bond.
d. A house financed with a fixed-rate mortgage.
5. Under which of the following circumstances would it be financially beneficial to you to borrow to buy something now and repay it with future income?
a. When you need to buy a car to get a much better paying job.
b. When you really need a week vacation.
c. When some clothes you like go on sale.
d. When the interest on the loan is greater than the interest you get on your savings.
[Answers: 1. b; 2. d; 3. d; 4. d; 5. a]
Click here to view the full 31 question and answers.
You’re ahead of the game if you correctly answered all five of the questions. According to the National Foundation for Credit Counseling’s 2013 Financial Literacy Survey, 40 percent of U.S. adults graded themselves a C, D or F on their knowledge of personal finance.
The National Financial Educators Council defines financial literacy as “possessing the skills and knowledge on financial matters to confidently take effective action that best fulfills an individual’s personal, family and global community goals.” While this isn’t the only definition available, knowledge and building skill sets are common themes when people think about being financially literate.
Today, I’d like to focus on budgeting, which helps us take control of our money instead of letting our money control us. A Gallup poll conducted last April showed only one in three Americans prepare a detailed household budget outlining their income and expenses. Creating a budget is the first step toward establishing a healthy financial future. It helps you see where your money is going each month and identifies areas you can find extra money for paying down your debt or making investments.
Consider the following example. Car insurance is required to legally operate a vehicle, so it’s a necessary expense each month. Several factors go into calculating your monthly insurance premium, including your deductible and the coverages you choose. Opting for a higher deductible or altering coverages are just a couple ways to save money on your auto insurance. Companies like Mercury Insurance also offer tips and discounts that can help you save even more. I recommend shopping around every so often to make sure you are getting the lowest rate. You can often save quite a bit of money simply by comparing your current rate with rates offered by other companies. It’s an easy way to put a few hundred dollars back in your pocket.
Here are two tools you can use to help you create a household budget: Quicken, which makes personal finance and money management software you can download to your computer, and Mint.com, which lets you manage your finances from the Web (or using an app on your smartphone). Start with a list of your monthly recurring bills (e.g., rent or mortgage, insurance, utilities, etc.) and go from there.
I also recommend that you regularly monitor the transactions on your bank and credit card statements to ensure you aren’t getting charged for purchases you didn’t make. These statements also categorize your purchases by type, which will help you establish your budget limits.Getting in the habit of keeping a budget will make you more accountable for your finances, and instead of blindly spending money, you can make your money work for you.
Warren Runnels Insurance