April was Financial Literacy Month and although it’s over, the celebration hasn’t stopped. Financial literacy is one’s ability to understand and make informed decisions about money and finances. Last month we celebrated the importance of financial literacy and dealing with personal finances. Although this is something that should be talked about year-round, there are many barriers preventing people from improving their financial literacy.
We conducted a survey among 10,484 US employees across 26 industry sectors to find out what’s stopping them from being financially literate. This led us to develop the Financial Fitness Score, which is an objective measure of financial wellness based on responses to 10 behavioral questions concerning one’s spending, saving, and borrowing habits. From these questions, we derive a Financial Fitness Score from 1 to 5 for any individual. One’s Financial Fitness Score is not necessarily correlated to salary; 40% of people with an annual income of $100,000 or more have a Financial Fitness Score of 3 or lower. We found 91% of US employees scoring a 1 worry about their finances, while only 12% of US employees scoring 5 worry about finances. The higher the Financial Fitness Score, the greater the financial wellness. Those with a lower fitness score are less likely to seek help or advice because they find finance to be scary and difficult to understand. As a result, employees are finding themselves in financial hardships.
3 Ways to Celebrate Financial Literacy
Better spending, borrowing, and saving habits can go a long way. Take a moment to evaluate your current financial situation. What is your Financial Fitness Score? If you’re shocked by the results, it’s time to improve your financial decision making. If you’re not shocked by the results, these tips can still be helpful.
Here are a few changes to make this month and beyond…
- Better Spending – If you have a strong preference to spend rather than save, try to avoid that behavior starting this month. When you receive your paycheck, put some of it into savings (even if it’s a small amount) then spend what’s left. If you continue this pattern throughout the year, you will be surprised by how much you saved.
- Better Savings – Saving money is arguably the most difficult part about finances. Many people feel that they either don’t earn enough to save or that their savings must go to paying off debt. Either way, it’s important to save a little each month. Anything you can contribute to savings from each paycheck will help. Another way to save is to cut back on your expenses. Can you switch to a car insurance provider with lower rates? Can you cut down on your cable package or eliminate it altogether? Can you switch cell phone carriers? Take a moment to evaluate your current expenses and figure out where you can cut back in order to save across the board.
- Better Borrowing – Avoid payday loans. These loans will only put you further into debt due to the high interest rates. Instead, look for more manageable credit tools to help consolidate your debt. Find out if your employer offers financial wellness solutions. Is there a program you can enroll in? Salary Finance partners with employers to offer low-cost, fixed-rate term loans that can be repaid through payroll deduction. These loans can be used to pay off debt and ultimately help you increase your credit score and move into savings. Talk to your employer to see if this is an option for you.
How Can Employers Help with Financial Literacy?
Employers can step up and help their employees get the financial education they need to become financially literate. We found that employees see their employers as a reliable, trusted source of good advice regarding financial issues and tools. Therefore, employers should make financial wellness a part of their wellness strategy. Not to mention, the impact financial wellness programs can have on retention and productivity. You can read more on that in our Employer’s Guide to Financial Wellness. Download your copy today!