So this month, we’re talking about financial literacy. And how sometimes we learn from life and at other times we learn from other people in our lives. Sometimes, those people try to teach us and we don’t listen. At best, we can hope to be either a good example or a cautionary tale. In my life, I’ve been a bit of both.
I’m going to get a bit personal here. Today is my mom’s birthday. She would have been 91 today and I’ve been without her for nearly 29 years. She was good with her money. I don’t think it was hard for her, at least to me she made it look easy. And that may or may not have been a good thing when it came to helping me become financially literate, because it wasn’t easy for me. I thought I knew everything I needed to know, so I didn’t really listen to what she tried to tell me. I was sure she didn’t understand. I was sure I knew better. I was SO SO WRONG.
One of the reasons I think I am a good credit counselor is that I can empathize with and relate to most of my clients in one way or another. Unfortunately, that is because I have made some pretty bad decisions financially in my life, in large part because I just didn’t know any better. I think my parents tried, but it didn’t really stick. Another reason I’m glad to be in this line of work is that in my time here, I’ve learned even more. I think I’m making pretty good decisions now, but in some ways, I’m still paying the price of bad decisions I made years ago. I have a lot of examples I can use for my clients and my students, and for better or worse, many of them are about me.
As a young person, I was as financially illiterate as they come. I wasn’t a good saver, and I wasn’t careful in my spending. I didn’t understand my checking account or how credit worked. Last week, we talked about what is the real choice, and how in reality that is often a long term option. If my 25 year old self had listened more to my mom, I might have made better choices in the long term like not accumulating debt as a young person and putting more of that money into my retirement.
An important part of financial literacy is to understand the ratios involved in debt. The most basic of those is what’s called the Debt-to-Income ratio, or DTI. It’s basically the percentage of income that goes to pay debt. Car payments, student loan payments, credit cards, basically any debt other than a mortgage is what’s included in this number. The goal is to have a DTI of less than 20% of net income. What this does is helps us to know when to say when. If it’s getting close to that 20% mark, it’s time to focus on repayment, and stop borrowing until you pay off some debt.
Well, isn’t that interesting? Yes? No? Maybe you don’t think so. I didn’t think so. At least I didn’t until I figured out my own number. And when I did, I became very interested! Suffice it to say it was NOT GOOD. It was a BIG reality check. So when I’m working with a client, I’m not just preaching from on high. I can tell you a story from the trenches. My story. About how learning to teach a class at LSS helped me to learn what a DTI is, and to realize I was headed for trouble and then the steps I took to fix it. Now I can share so my clients know there is a way out of the trench. I think my mom would be proud.
Do you need help digging out of your own financial trench? Do you need a reason to believe? The counselors at the Center for Financial Resources can help you find your way out when it seems like there’s no hope. Call us at 1-888-258-2227 to make an appointment or visit our website at www.lsssd.org.
Written by Sylvia Selgestad, Financial Counselor and Educator
Photo credit: http://www.canstockphoto.com
LSS Center for Financial Resources
Consumer Credit Counseling Service | Housing Resources | Sharpen Your Financial Focus | Financial Fitness Education
705 East 41st Street, Suite 100 | Sioux Falls SD 57105-6047
605-330-2700 or 888-258-2227
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