Financial literacy — the ability to make informed decisions regarding finances — is something the American population has been struggling with for some time. A study conducted in 2012 by the National Foundation for Credit Counseling (NFCC) revealed that most people in the United States have poor financial literacy.
But it’s not entirely our fault. We also have very little access to financial education. According to the study, only 14 states require a course in personal finance to be offered in high schools and only 13 states require students to take these courses to graduate.
Most people are not provided with basic education on ways to manage their finances, including the simple task of writing a check and the more complicated process of acquiring a mortgage loan.
Surprising, only 43 percent of adults have a budget and keep close track of their expenditures, according to the survey, and 22 percent do not have a good idea of how much they spend on the everyday essentials like housing and food.
Even more shocking is a recent report from the Federal Deposit Insurance Corporation (FDIC) that a whopping 17 million Americans don’t have a savings account or are underbanked, meaning they don’t have adequate access to mainstream banking products.
Learning to save and manage money is essential in a financially-
What Government Spending Is Teaching Us
If we take time to examine government spending and other financial decisions from the government, we may feel a bit disappointed. There’s no doubt that, on occasion, their financial habits are just as bad as ours.
#1. Allow Debt to Grow Out of Control
In 2011, millions of Americans held their breath, hoping that the U.S. government would not suffer a sovereign debt default.
Months after the national debt ceiling of $14.3 trillion was breached in May 2011, lawmakers were warned that they would have only a few months to find a way to reduce that debt before the government officially defaulted.
As the months passed, Democrats and Republicans just couldn’t seem to come to an agreement that would help reduce the debt. It wasn’t until one day before the government would default that lawmakers found a way to temporarily reduce the debt.
The struggle to come to an agreement was not without consequences, however. Shortly after the ordeal, Standard and Poor’s downgraded the U.S. credit rating from AAA to AA+ for the first time in history.
#2. Make a Plan, but Fail to Follow It
After the sovereign debt default debacle, President Barack Obama called for Congress to set up a so-called “super committee” that would make sure there were no close calls in the future.
The committee consisted of 6 Democrats and 6 Republicans, and the group was charged with the responsibility of reducing government debt by over $1 trillion. If the committee was unsuccessful in doing so, automatic spending cuts, also known as a “sequester,”
After months of debating on ways to make reductions, the committee was unable to come to an agreement by its November 2011 deadline. As a result, the government is now in danger of breaching the debt ceiling again.
Also, as noted by Ben Bernanke, a series of tax increases set for the end of the year could push the economy over the so-called fiscal cliff, resulting in a recession. Lawmakers are now trying to figure out how to avoid these issues before 2013, but so far, they have come to no definite solutions.
#3. Put the People Dependent on You at Risk
Another close call the U.S. suffered was a government shutdown — actually, make that two government shutdowns. For the first time in 15 years, lawmakers struggled to come to an agreement on a fiscal budget and nearly forced the government to come to a close in April 2011.
When lawmakers were able to create a short-term solution, federal employees who would have lost their paychecks immediately breathed a sigh of relief.
But the feeling was short-lived. Later that year, lawmakers struggled to come to an agreement on a federal spending bill that, if not passed, would threaten yet another federal shutdown. Luckily, lawmakers found a way to make it work before the shutdown actually occurred.
#4. Keep Overspending
Two major issue financial issues that the government says it is taking steps to address are overspending and fraud.
In July, the Labor Department announced that approximately $14 billion in unemployment checks had been accidentally overpaid. Individuals who weren’t actually seeking jobs, were fired or quit voluntarily, or continued to file claims after returning to work were all illegally receiving funds.
The government shared its intention to recoup the money, and improve its payment system so that accidental overspending would be solved.
#5. Be Careless with Your Finances
Unfortunately, overspending was not the only issue. In August, a separate report released by the Treasury Department revealed that $5 billion in tax refunds was sent to identity thieves in 2011.
Investigators with the Treasury Department found that the IRS allows fraud to occur by failing to properly verify tax ID numbers. Even worse, some IRS employees were reportedly encouraged to process as many applications as possible without using fraud detection measures.
How to Improve Your Own Financial Habits
As you can see, the government has a pretty bad track record when it comes to managing finances, so it’s best to look to yourself when seeking inspiration in developing good financial habits.
Learn to budget your money: As noted in the NFCC study, most people don’t know how much money they are spending each month. Creating and following a budget can help tremendously in knowing how much you are really earning and spending.
Stop impulse buying: Often times, we find ourselves smitten by a particular item, and purchase it simply because we have the money in our hands. By following your budget, you should be able to avoid the dangers of impulse shopping and resulting debt.
Don’t miss payments: If you have a loan or credit card with interest, don’t miss your payments. Not only could a missed payment result in you paying higher fees, but you could be penalized with a lower credit score, which opens up a new can of worms.
Make major purchases cautiously: If you are thinking about buying a big-ticket item like a car or house, do so cautiously. Educate yourself on what it means to obtain a loan, and what interest rate you will pay. And if you don’t think you can afford a big-ticket item, just don’t buy it.
It’s not always easy to know the right way to manage money, as seen in mistakes made by everyday Americans and top officials in Congress. But if you pay attention to what you are spending each month, and make wise financial choices along the way, you should have no problem improving your bad financial habits.