We live in a society that pushes debt from fancy credit card offers and loans for everything. I personally had a financial awakening in recent years. And while on this journey, I routinely ask myself, why didn’t anyone teach me this stuff earlier? This is why I am a huge advocate for gifting financial literacy.
After the 2008 great recession, people lost their homes and retirement investments. In 2018, federal government workers were furloughed for over a month, bringing to light how many public servants live paycheck to paycheck. After the COVID shutdown in 2020, millions of people lost their jobs and were struggling to make ends meet. Each of these instances emphasizes to me that now more than ever we as a society need to be more financially literate to set ourselves up to withstand these more recurring financial disasters.
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What is financial literacy?
At the start of 2021, Reddit’s WallStreetsBets showed the world that retail investors are a force to be reckoned with (and won’t be stopped)! Just in case you didn’t hear, a group of Reddit users, using their financial savviness, made Gamestop’s stock soar to make Wall Street hedge funds shorting the stock lose money big time. Because of this, Reddit spent their entire marketing budget for a five-second tv ad during the Super Bowl. That’s power!
These Reddit users showed us how important it is to be financially literate. But what is financial literacy? As defined by Investopedia, “financial literacy is the ability to understand and effectively use various financial skills, including personal financial management, budgeting, and investing.”
To gain financial independence, you have to be knowledgeable in how to efficiently manage your money.
I will be completely honest. I had not a clue what shorting a stock meant before this event. I even watched The Big Short to learn more about this phenomenon. And then I read about Nina Carr. In December 2019, Nina gifted her son 10 shares of GameStop as a Kwanzaa present. Nina paid $6.19 per share at the time. Why GameStop? Her son Jayden liked video games and she wanted to teach him about the stock market.
Well, after GameStop’s stock price soared in January 2021, Nina quickly shared her financial knowledge with Jayden, who decided he was going to sell. And he did – for $3,200! That’s not even the best part of the story. Jayden is saving $2,200 of his GameStop gains and investing the remaining $1,000 together. I was floored when I heard about Nina. I mean, talk about #mommygoals.
All this made me realize I have much more to learn on my path to be financially literate. Especially because I want to channel my inner Nina Carr, and properly gift financial knowledge to my children, in hopes they have a fantastic beginning to financial success in life.
Why is financial literacy important?
As a society, we decided that reading and writing is an important skill, if not a right, for every human on this planet. Why? Without those skills, it is hard for one to communicate and function in society. Financial literacy is just as important. Over the years there have been studies into whether being financially illiterate may be a cause of the increase of wealth gaps, homelessness, and lack of retirement planning. I’ll drop a few links to a few studies at the bottom of this article if you are interested in learning more about these studies.
Using my life as an example, I think my life path would be so different if I was gifted financial literacy earlier. A few years ago, as a married working mom of two boys living in suburbia, one would think I had my finances together. But little did people know, I was in debt. All kinds of debt – school loans, credit cards, car loans, mortgage. I had it all. But you know what I did not have? A rainy day fund for emergencies or a proper retirement account.
Then one day in 2017, on a drive up Interstate 95 to visit my parents in New Jersey, my husband and I found a podcast hosted by Dave Ramsey. MIND BLOWN. In his book, The Total Money Makeover, Ramsey provides seven baby steps to financial independence. Debt is the enemy, he says, and cash is king. Looking back, his baby steps are just common sense, but in a society that pushes debt on you, I couldn’t fathom being “debt-free.”
The earlier we learn the basics of personal finance, the more we gain in our future investment (literally).
Since that day on I-95, we have immersed ourselves in financial literacy. I created a budget, figured out our expenses, and paid down our debt. By 2019, we were debt-free, other than the mortgage. Because of this, I’m a huge Dave Ramsey fan. Really, it’s his baby steps and debt snowball effect concept that I really endorse, simply because it worked for me.
But even still, every day, we are still learning. With books, like the Intelligent Investor and Simple Path to Wealth, YouTube videos, Facebook Groups, etc. For us, now it’s all about learning how to invest and grow our retirement accounts so we can achieve F.I.R.E., which stands for Financial Independence Retire Early.
I often wonder, where would I be now if I was financially literate oh so many years ago? When I was 16 and earning my first paycheck, would I have still wasted my wages from my after-school job on the latest fashion trend or started investing? I truly hope the latter. If only I had the wherewithal to read posts like this one from My Finance Diary.
But you know what they say, hindsight is 20/20. So now I focus on how I can teach my children, the next generation, about money. I want to give my two sons the tools and knowledge that I wish I knew when I was younger.
Breaking the taboo about discussing finances with friends can be life-altering!
When we were starting our path to become more financially literate, I always thought, I wonder what my friends do? But for some reason, I had this weird feeling that I wasn’t allowed to ask that. And then one day, a close friend of mine and I were discussing buying something, and one of us joked, “well that’s not in the budget.”
I felt like that opened the door. I told her what my husband and I were up to, about Ramsey’s baby steps and said, “if you are comfortable discussing, I’d be curious to know how you handle your budget.” And it was like an AHA! moment. We started sharing ideas and thoughts about finances, budgets and investing. Turns out she knew all about Ramsey’s 7 baby steps because she took his Financial Peace University course! Small world, right?
Why discussing our finances is taboo I’ll never understand. A recent survey by CreditCards.com found that 37% of Americans said their main source of financial advice comes from friends and family. When we want ideas about recipes to try, car models to buy, or places to live, we happily discuss this with our friends. So why not talk about the one thing that allows us to do all those things – money.
Your friend circle is your friend circle for a reason. Why not learn from each other or help each other climb up this financial ladder?
Alicia Adamczyk wrote an article on CNBC about this very topic. She describes how she broached the topic of finances with her girlfriends – she called it a Money Salon. In describing her fantastic idea, she suggests inviting friends who are comfortable around each other over to your home to have a judgment-free zone conversation about all topics money-related. This could include the price of healthcare to personal finances. Alicia recommends informing the group ahead of time of the plan to discuss money so everyone knows what to expect and you can work through any hesitations or uncomfortableness beforehand.
If you aren’t ready to jump in to direct conversation, you could always have a podcast playing in the background, like Friends Who Talk About Money. The podcast is hosted by Claire Wasserman, founder of Ladies Get Paid, a platform that champions the professional and financial advancement of women. In her podcast, Claire speaks to families, friends, and couples together about finances. She also brings on experts to help navigate common financial issues. It’s an all-around great podcast that could be a conversation starter between friends!
You know the why. Now here’s the how.
Raise your hand if ever played Monopoly growing up. I have two hands up because I played that game with my parents and friends weekly. I loved it. The thrill of trying to get Boardwalk and Park Place, building hotels, and getting my opponents to go bankrupt.
Ok yes, I’m competitive. But think about it. Little did we realize that through this fun game we could learn our financial styles. There was always the one who saved their money and didn’t buy properties. Then you have the big spender who bought every property they landed on and never had enough to build houses. And then there was that one player who was savvy enough to buy the right properties, negotiate the best deals, and slowly build an empire.
I wish I realized when I was playing Monopoly, I was learning life lessons about handling money, and not just playing a game.
I want to be that unbeatable Monoplogy player in real life. Particularly the part about taking care of my finances now so that I could make my money work for me later in life. Looking back (hindsight, yea yea), I wish I was gifted financial literacy when I was a child or right after I graduated law school and started #adulting.
If you are feeling inspired to gift financial literacy, but need some ideas, check out my blog post 5 Ways to Gift Financial Literacy to Children for unique ideas to gift financial literacy to the children in your life and for those ready to enter adulthood. And it includes Monopoly!
Have a recent college graduate ready to enter adulthood? Check out my blog post 4 College Graduation Gifts That Teach Financial Literacy for some interesting gift ideas for your new graduate!
I admit, my gift ideas may not be on their holiday gift list. But I promise these gifts are fun in the present and will teach valuable life-long lessons for tomorrow. But if you are worried about how gifting a financially focused gift may be received, try pairing the gift with some cash. Who doesn’t love cash? Consider it seed money for the kid’s future.
The information I provided above is solely based on my personal experience and research. Since I am not a personal financial advisor, I recommend you do your own research or talk to a financial advisor. If you are like me and love to research, here are links to some articles and/or studies that I reviewed when writing this post. If you want to learn more about how some believe that financial literacy can help in closing the wealth gap, check out this article from Triple Pundit. Here’s an Australian study looking into financial literacy and homelessness. Lastly, here is a study conducted in the United States that is 10 years old, but provides a lot of insight into the tie-in between financial literacy and proper retirement planning.
I hope this post inspires you. Be it talking to your friends about finances or starting someone’s path on financial literacy. So, go start planning how to create a financially smarter generation.
And, Gift the Unexpected.