By Heather N. Kolich, County Extension Coordinator, Extension Forsyth County, May 2022

Talking about money is hard. Finances are infused with the whole range of emotions, so bringing up money matters with a spouse, parent, or child is sure to push at least one emotional button. But having family conversations about money is important for achieving financial stability, reaching shared goals, and teaching children about money management.

What is financial literacy?

The exact definition of financial literacy is slippery. Essentially, financial literacy is knowledge of the various products of our financial systems and how to use them while avoiding scams and risks inherent in financial technologies, combined with the practice of sound decision making and responsible behaviors related to personal finances. Got that?

Actually, many of us don’t. A 2014 study indicated that financial literacy varies by age, income, race, and gender, but overall, only slightly over half of U.S. adults demonstrated financial literacy – and in a 2020 personal finance index survey, only 20 percent of adults measured in the high level.

Strategies for improving personal financial literacy start with getting a handle on the basics of personal finances: income, spending, saving, investing, and managing risk. Let’s look at each component and their relationships to each other.

Personal finances hinge on income, the money earned from work, rents, business profits, and investments. For a healthy financial situation, income must equal or exceed spending. A budget can help show how income and spending match up. To create a simple budget, use a spreadsheet to list out regular monthly expenses, such as rent or mortgage, electricity, insurance, gasoline, groceries, etc. Getting an eyeball on the number of monthly expenses can be enlightening. Add up all the monthly expenses and subtract them from monthly income. When expenses are more than income, it’s time to either reduce expenses or increase income. When income is more than expenses, saving and investing for future purchases and retirement become possible. Managing risk is important at each level. Risk can come from investment choices, but we are increasingly exposed to financial risk through the many technologies available to manage money.

What’s a good way to talk about money? My dad taught me about saving and borrowing in much the same way he taught me to cook an omelet and shoot a pellet

rifle: with hands-on experience. Shortly after my 10th birthday, he borrowed $12 from me to buy a pair of shoes. He paid interest on the loan and set up a schedule to show how my money was growing. When that $12 turned into $30, he paid off the loan and took me down to the credit union to open my first savings account with my earnings. Through that guided experience, I learned two lessons: borrowing money means paying more for what you buy, and interest makes money grow.

The coin flipped recently when I realized Dad needed help with his finances. I dreaded the conversation because implying his capabilities are declining could push an unhelpful emotional button. Conversely, he knew he needed help but didn’t want to bring it up because he didn’t want to burden me. By keeping the conversation focused on our mutual goal – his financial health – we came to a successful solution that left both of us relieved and happy.

Ways to improve financial literacy

A coalition called Jump$tart began advocating for financial literacy curriculum for grades K-12 in 1995. There are many learning tools collected on the website, including an interactive game from the Federal Deposit Insurance Corporation (FDIC) called How Money Smart Are You? that is useful for both kids and adults.

As families, we have shared goals, and money is a tool to help us reach them. Incorporating discussions about money management and financial strategies into conversations about family goals is one way to increase financial literacy, reduce emotional resistance to talking about this important factor of daily life, and improve personal financial health.

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