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April is Financial Literacy Month!

April is Financial Literacy Month!

April 15, 2021

Perhaps appropriately, Tax Day and financial literacy cross paths in April of every year. Personal financial literacy is an incredibly important and often under appreciated skill set, so it seems only appropriate to take this opportunity to discuss the topic.

Financial literacy involves educating yourself on all facets of personal finances. One interesting example, Tax Day, arrives right in the middle of the month. On this day, the nation unites around a counterintuitive mindset. People often cheer getting money back and lament owing taxes every April, whereby the recipients feel as if they have won, and individuals owing feel like they’ve lost.

Financial literacy, however, would portend just the opposite. When the IRS sends you money back, while it undoubtedly feels good to receive money, the reality is that you have just extended the US Government an interest-free loan throughout the year. Alternatively, when the IRS sends you a bill, the US Government has effectively extended you an interest-free loan for the year.

Given a choice, most people would generally choose to be the borrower of an interest-free loan rather than the lender. If you doubt that theory, ask the bank for an interest-free loan payable next April and see how far it gets you.

While that example highlights the gap in truly understanding finances, it is just the beginning. Financial literacy involves educating yourself on financial topics, as well as implementing common-sense financial best practices.

As is carved in stone on Dodd Hall on Florida State University’s campus, “the half of knowledge is to know where to find knowledge.” No one expects the average consumer to understand the nuances of financial products and jargon, but you need to be comfortable with finding it.

With so much misinformation and marketing materials, it can be challenging to cut through the waste. Your financial institution is an excellent place to start learning about products, Investopedia.com is a fantastic resource for definitions, and a trusted financial planner is an excellent resource for questions large and small. Those are just a few examples but be diligent about vetting the quality of the information you consume before relying on it.

When it comes to personal finance best practices, let’s begin with the basics. Run your credit report now to understand your starting point, which is free annually from all major credit bureaus. From there, you need to develop a budget and find a way to tackle your debt, if applicable. Check your score now and after you have made some improvements to your financial health for real-time tracking. This way, at a minimum, you understand your own financial position.

Financial literacy is a constantly evolving endeavor. From learning to balance a checkbook and managing debt and credit, continuous improvement is the name of the game to complex financial planning. It is never too late to start and, once you do, never stop learning.  

This article is meant to be general in nature and is not intended, and should not be construed as personal advice of any kind. Please consult your financial advisor prior to making financial decisions. Gary Parsons is a Financial Advisor with U-Vest Financial®, a separate entity from Waddell & Reed and can be reached at 850.300.7055. Waddell & Reed, Inc., Member SIPC. (04/21).