“Hey, did you hear…..”
“Did you know that….”
“Somebody once told me…..” (insert the rest of the “All Star” lyrics by Smash Mouth here)
Yeah, aren’t we all experts? Or, at least, we know an expert who is willing to impart their knowledge without even being asked. But is that information really good information?
April is Financial Literacy Month. “A whole MONTH devoted to financial literacy?” you wonder? Why, yes, yes there is. But why? Well, because it needs at least that much attention. As I am out doing financial literacy education, I come across a lot of different perspectives and opinions. Unfortunately, too many of them are wrong.
So, to kick of Financial Literacy Month, let’s take a look at, and debunk, some of the incorrect financial literacy myths that are out there.
“Everyone deals with money, so we just automatically know how to deal with money.”
Umm, no. It’s kind of like just handing some 14 year-old kid the keys to the car and saying “Go for it. California isn’t that far away, so have a good trip.” According to a great infographic put out by Visual Capitalist, 60% of Americans reported that they know they will need to be more financially secure, but DON’T KNOW HOW TO GET THERE. 76% of Millennials lack basic financial literacy. Perhaps this is because only 16% of American students are required to take any sort of personal finance class in school.
“A budget only tells me ‘NO’.”
Following a budget may mean you have to say ‘no’ to something. But a budget is really just a plan to be able to say ‘yes’ to the most important things. It’s not necessarily a demand that you don’t spend money, but rather a plan on how you ARE going to spend your money well. And that doesn’t sound so bad now, does it?
“Having a credit score will cost you more than what it saves you.”
Well, not if you understand all of the ways you can build credit and what it all impacts. Even if you aren’t looking at a major purchase (house, car), your credit score plays a big part in determining things like your insurance rates. I once talked with an individual who had two collections show up on her credit report. Those two items were going to increase her insurance premiums by $800 in the first year alone. Bad credit and no credit are both expensive.
Having at least a basic credit history, on the other hand, doesn’t need to cost much of anything. To have a credit history, you don’t have to have debt, you just have to have credit available to you. Get a credit card without an annual fee. Pay it off each month (meaning no interest) and it will cost you NOTHING extra. Or just don’t use it. Don’t have a balance? Don’t make a payment. But that monthly payment will show up on your credit report as ‘on-time and in-full’. How about overdraft protection on your checking account? On mine, I don’t pay if I don’t use it. But it is a line of credit available to me that is building my history. AT NO COST.
“Debt is always bad.”
It doesn’t have to be. Some of the world’s wealthiest people do what’s called ‘leveraging their assets’. They take out a loan against something they own (secured loans usually have a lower interest rate), and then invest those funds in something that will make more interest than what they are paying on the loan. Sure, you are paying interest on the loan, but the net gain can be considerably higher than if they just pay the debt off and let it be.
Another way to look at it is the investment of student loan debt. As long as you are investing in a degree that will actually be usable (unlike a degree in philosophy), college graduates do make more than those without a degree. But you do need to do a little research ahead of time and be smart about it.
“I can just figure it out later when I actually have money to work with.”
True, you may have more money available in the future. But if you put it off, you may actually end up with less money over all. What kind of late fees and higher interest will you pay if you don’t deal with it now? Not investing now? Check out this article by Nerdwallet and CNBC about the impact of delayed investing. It actually gets REALLY expensive to delay investing.
“It’s just too much to wade through everything out there and know what’s right and wrong.”
It’s true. There is a ton of conflicting information out there on the interwebs. But this myth implies you are on your own to figure it all out. Any not-for-profit credit counseling agency can help you debunk the financial literacy myths and figure out what is right for your situation. For example, the counselors at the Center for Financial Resources would be happy to help you debunk the myths, increase your financial literacy, and get you on the path to financial freedom. You can schedule a confidential appointment online or by calling us at 605-330-2700.
And one more time…… Myth debunked.
written by Breck Miller
images courtesy freedigitalphotos.net