April is Financial Literacy Month, a time when we raise awareness about the need to boost our collective financial know-how, and brush up on the money terms we all should know. Officially, financial literacy is defined as understanding how to earn, manage and invest money. Studies have shown a lack of financial literacy can cost you (a lot). Americans estimate they lost an average of $1,506 in 2023 because of their lack of knowledge about personal finance, according to the National Financial Educators Council. Just think about how those funds could have been used–investing, making an extra mortgage payment, putting it away for your child’s education…we could go on and on!
Even for those who consider themselves money-managing pros, we can pretty much guarantee there are still things you can (and should) learn when it comes to boosting your financial literacy. HerMoney caught up with four financial educators and coaches and asked them, “What’s the financial term or concept you wish more people understood?” Here’s what they said.
APR/APY
“A financial term I think everyone should understand is APR/APY,” says Mykail James, of Boujee Budgets. “The “A” in both these acronyms stands for annual. Meaning if you have a savings account with an APY of 5% you do not earn 5% every month. The bank divides the 5% by 12 months to determine your monthly rate. If you have a credit card with an 18% APR the bank does not charge 18% every month. I see this confused by many people.”
Expense Ratio
Financial educator Tess Waresmith says understanding the term “expense ratio” can save the average investor thousands of dollars over time. “Simply put, an expense ratio is an annual fee, expressed as a percentage, that every investor will pay for holding investments like mutual funds or ETF’s,” explains Waresmith. “It’s a fee that covers the operating costs of the fund itself – things like management, marketing, administration, etc. Generally expense ratios range from .0% to 1%+.”
As Waresmith notes, while that percentage range might seem insignificant, over time, the fees you pay to hold investments will compound. “You don’t need to be an expert in expense ratios but having a basic concept of what they are and the different options available to you, can potentially improve the returns of your portfolio. Learning about different investment options with lower fees like Index Funds and ETF’s can potentially be a great option for many investors,” adds Waresmith. (And of course that learning should be year-round, not just during Financial Literacy Month!)
“Good” And “Bad” Money Decisions
While there are plenty of terms experts wish people would learn, financial educator Allison Kade says there’s one concept she wishes more individuals could unlearn–and that’s “good” and “bad” money decisions. “I’m a firm believer in the idea that everyone’s finances–and money mindset–is unique and that the same purchase might be “good” for one person and “bad” for another.”
She notes that while debt generally gets a bad rap, other times, it can be a sound part of someone’s financial plan. “Sometimes purchasing a home can be a great way to build someone’s net worth, and other times it just doesn’t fit their lifestyle or goals.”
The Importance Of Your Credit Report
As financial educator Susan Bistransin puts it, your credit card is your “lifelong report card.” “After getting out of school, your teachers are no longer telling on you, but the credit bureau is,” says Bistransin, who serves as a financial education and empowerment coordinator for a school district in Maryland (and BTW, was recently recognized for her dedication to teaching young people about financial literacy. Go, Susan!).
According to a recent study, more than 30% of Americans have no idea what their credit score is. Being in the dark about your credit history–and the contents of your credit report–could be lowering your credit score, or worse, you could be a victim of identity theft and not even realize it. (PS, if you need a primer on how–and why–you should review your credit report regularly, click here). “Credit is an important tool in managing your life and can provide you with a wise way to manage your financial capability,” adds Bistransin. “It can also leave you on a quick path to ruin if you don’t know what you are doing.”
The Bottom Line
Financial Literacy Month is a great time to brush up on our money management skills and terms. But, the reality is by doing so year-round, we can put ourselves in a better financial position both now and in the future. “Money is our common denominator,” says Bistransin. “Everyone needs to know how to handle their money. Whether you have a little or a lot – doesn’t matter. Everyone needs to know how to make their money work for them.”
MORE ON HERMONEY:
- The 13 Best Games That Teach Kids Financial Literacy (And Are Actually Fun)
- 9 Things To Talk To Young Women About To Cultivate Financial Empowerment
- The New Rules Of Allowances For Kid
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