Financial Literacy refers to the ability to understand various financial knowledge, skills, tools, and practices that individuals would need to make effective decisions about their personal finances. Topics of financial literacy are related to money management, including budgeting, saving, investing, borrowing, and retirement planning. Recently an increasing number of high schools began to offer financial courses to teach students financial literacy, and they have been well received and welcomed by students. Statistically, the number of states requiring public high schools to offer a personal finance course increases from 9 to 15 between 2007 and 2009. Specifically, 13 out of 15 states make the personal finance course a requirement for graduation from 7 in 2007. Updated information (12/14/2023), according to Next Generation Personal Finance, shows that 25 states now require students to take a personal finance course before graduating from high schools. Students’ thirst for such knowledge may be associated with the mad economic climate of the past years, where pricing has gone up and companies are constantly trying new and expensive deals on customers. With the offered financial courses at high schools, students have the opportunity to gain the comprehensive financial knowledge and skills, such as the benefits and risks associated with debt, maintaining a credit card, purchasing a home including making a down payment and selecting a loan, budget constraints, good money management skills, and starting a 401(k) retirement account. From my point of view, understanding budget constraints would be my first priority to take the financial course and managing credit cards would be my second, while starting a 401(k) retirement account would be my least important.
Financial education brings practical advantages for young people in learning how to effectively budget their money. Everyone has their own budget, and it is better for people to recognize their budget constraints, which makes them debt-free. People prioritize their needs and identify what is essential, desirable, or optional for their life. People need to be conscious of their wants, needs, and savings. With financial courses, young people have throughout ideas how to live within their means and how to allocate their resources wisely. Most probably follow the 50/30/20 plan, where 20% goes to savings, 30% for wants, and 50% for needs. Although this may not resonate with every person, it is a practical plan for most people and can have an impact on budgeting. According to researchers, 74% of financial decisions are better after the people have financial knowledge. However, many people believe that financial knowledge is only used when it comes to money. This is false because making financial decisions sets off a chain reaction. Each financial journey begins with a single decision—a choice that, over time, gathers momentum and influence. Whether it's the decision to invest, save, or spend, this initial step creates a ripple effect that resonates throughout our financial landscape. Often, these choices are influenced by our values, goals, and circumstances. As Dave Ramsey, an American radio personality who offers financial advice, said “You must gain control over your money or the lack of it will forever control you.” Budgeting is an extremely essential topic to learn in financial classes as it helps young people understand how to manage money under constraints, prevent overspending, and planning for future expenses.
Taking financial courses could equip young people to build blocks for good credit card management skills. Credit cards are for everyone, and people need to manage their credit cards well in order to have a good credit history, which results in lower interest rates, and extended loans for credit cards. All credit cards are pay-off. When people pay their bills on time, the bank will automatically place more trust in them, so they can give more flexibility to the consumer, as they know they will always pay their bills back. Credit cards loan money from the bank, and then at the end of every month people have to pay back the bill, with interest. This is how banks earn money. However, people do not always pay their bills on time, which leads to higher credit card debt with more interest. Americans’ total credit card balance is $1.079 trillion in the third quarter of 2023. A recent Clever Real Estate survey found that 3 in 5 Americans (61%) are in credit card debt, owing an average of $5,875. In addition, 23% say they go deeper into credit card debt every month and 14% say they’ve missed a payment in 2023. The strategy of credit card companies is that they raise interest rates when people don’t pay their bills on time. This makes them earn a lot more money, as many people don’t pay their bills on time. Dave Ramsey, an American radio personality who offers financial advice, said “You don't build wealth with credit card rewards and airline miles. You can't beat the credit card companies at their own game.” Young people need to have financial classes to understand credit cards and their impact on financial health.
The 401(k) retirement plan is considered the least sharpest tool in learning financial literacy, although understanding 401(k) and other retirement plans is certainly essential. A 401(k) plan is a tax-advantaged retirement savings plan offered by many American employers in the United States. It is named after a section of the U.S. Internal Revenue Code (IRC). Specifically, 401(k) savings accounts don't tax people on the part they are saving for retirement. This offer looks good to people who aren’t considering their retirement. But for people who manage their money well and already have a budget plan for their retirement, this 401(k) account doesn't seem as appealing as it should be. Think about students doing homework vs watching TV. For hardworking students, they don’t need an incentive of watching TV to do homework. Instead, they already planned that. For students who want rewards first, however, they would need to be lured with TV time in order for them to finish homework. Having a 401k account usually reduces the taxes people have to pay this year and if they make under $50k this year they can get up to $1000 free money from the government just for having a 401k. People’s employers set up their 401(k), and they have to deposit their funds with the plan administrator their company has chosen. Once their money is in their 401(k), they have to pick from the investment choices their plan makes available. Sadly, they probably are not going to have a big selection. Note that if earning money goes into a 401(k) account, it would be difficult to withdraw it without paying taxes on the withdrawal amounts. Dan Stewart, CEO and CIO of Revere Asset Management Inc in Dallas “Make sure that you still save enough on the outside for emergencies and expenses you may have before retirement. Do not put all of your savings into your 401(k) where you cannot easily access it.” Due to fast-changing job markets and current economic trends, people tend to be more interested in flexible and profitable retirement options than rigid structure of 401(k) retirement plans.
To meet the rapidly fluctuating economic situation in the society, unquestionably people, especially young people, need to develop their financial literacy as a cornerstone to make informed and effective money-related decisions. The integration of financial education into the current school curriculum is overall beneficial to students, and such financial education should be age-appropriate. John Doyle, Miami-Dade county Public Schools says that even kindergarten could begin to discuss the ideas of Needs versus Wants. With the financial knowledge, skills, tools, and practices they have gained, young people would be able to make wise, strategic finance choices under budget limitations. When people know about the knowledge of managing money, people can be financially independent and secure their own economic futures. They don’t have to worry about not having enough money, overspending on credit cards, or being chased by huge debt from the bank. One day when they become parents, they would continue unconsciously delivering financial knowledge and skills they have learned to the next generation, training their kids adept at navigating the complex world of money management and budget constraints in the correct direction, to some degree. They could even start to think about their retirement plan. Having a retirement plan is essential because people need to make sure they can maintain their standard living once they stop working. People don’t necessarily need to have a 401(k). There are other options, such as Individual Retirement Account (IRAs) and Health Savings Accounts (HSA) for medical expenses. In other words, no matter whether an individual needs the 401(k) or not, he needs to first consider his financial situation, what the retirement goals are, and what other alternative retirement plans are, even consulting with a financial advisor to determine the best retirement plan.
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