Page 339 - Encyclopedia of Business and Finance

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Financial Literacy

sumer rights and responsibilities, and decision-making sumers must manage their finances, but incomes vary.
skills for all aspects of life as consumers, workers, and cit- “Stretching” income to meet needs and wants is a part of
izens. Financial literacy affects all aspects of an individual’s financial management; knowing how to develop goals for
planning and spending: income, money management, the spending, based on a realistic understanding of income, is
use of credit, saving and investing, and decision making a basic part of financial literacy.
for the wise use of resources. A lifelong process, financial
literacy is a critical area of knowledge and skills for all con-
MONEY MANAGEMENT
sumers who must make choices about their financial
resources. From a child’s earliest spending to a senior citi- Money management is the process of planning how to get
zen’s retirement decisions, individuals apply their knowl- the most from money—how to use money to meet needs
and wants. Budgeting, either by a formal or informal plan,
edge and skills to financial choices. Managing finances has is a first step in deciding what needs and wants must be
become increasingly complex.
met and what resources are available. Money management
includes plans for saving and investing, not just spending.
ORGANIZATIONS PROMOTING Too often consumers spend all of their income, which
FINANCIAL LITERACY means no money is left for saving.
A number of organizations are active supporters of finan-
cial literacy, and many focus on financial education for
SAVING AND INVESTING
young people. The Jump$tart Coalition for Personal
Consumers must set goals for saving and investing,
Financial Literacy was convened in 1995 to promote per-
sonal financial literacy, particularly among young adults, because their choices of vehicles for saving and investing
and is a major source of financial literacy information. depend on those goals. Saving, contrasted to investing,
may be thought of as safeguarding money for future use.
Membership in the coalition includes more than 160
organizations committed to improving young people’s Saving may not provide a return on money. Investing,
knowledge and skills. A few of the member organizations however, may be defined as putting money to use in order
are: American Institute of Certified Public Accountants, to earn a return. Providing for the future can mean short-
term savings and long-term investments. If a goal is to
American Council on Consumer Interest, Federal Deposit
provide retirement income, a consumer should consider
Insurance Corporation, Girl Scouts of the USA, NAACP,
Social Security Administration, and the Foundation for long-term investment. Buying a new small appliance, on
Financial Literacy. the other hand, may require only short-term saving.
Income, money management, saving and investing,
and the use of credit require consumer planning and deci-
RESOURCES FOR FINANCIAL sion-making skills. Underlying all aspects of financial lit-
LITERACY
eracy is the knowledge and skills for wise use of all
A function of Jump$tart is to serve as a clearinghouse for
financial resources a consumer may accumulate over a life-
educational tools and resources, prekindergarten through
time.
adult, for all types of educational programs. These tools
and resources, available from members of the coalition,
include audiotapes, books, textbooks, booklets/pam- USE OF CREDIT
phlets, periodicals, posters, simulations/games, software/ Knowledge about credit is a major part of financial liter-
compact disks, student workbooks, lesson plans, teaching acy. Consumers use credit to buy durable and nondurable
guides, videos, and Web site links. Jump$tart maintains goods, large and small. Credit provides a convenient way
an online database of national training programs available to “buy now, pay later.” Buying on credit enables a con-
to consumers and educators. The materials available from sumer to build a credit rating, a necessity for mortgages
the Jump$tart clearinghouse help educators and students and loans. All consumers should be aware of the ways in
with financial literacy programs. The materials can also which they can use credit as a convenient way to purchase
assist adults to develop financial literacy—an important goods and services, but they should also know the costs of
point, since financial matters change throughout one’s credit and how to avoid the pitfalls of unwise use of credit.
life. Materials are organized by topic: income, money
management, saving and investing, and the use of credit. SOME CONSEQUENCES OF
FINANCIAL LITERACY
INCOME In 2003 and in 2004, Bankrate conducted financial liter-
What income is to be managed? This question is a first acy surveys of 1,000 Americans about what they know
step in wise management of financial resources. All con- about and how they act upon twelve concepts basic to

316 ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION