The Importance of Fiscal Literacy

Banks and other financial institutions give people numerous opportunities to obtain credit, so it becomes easy for someone to get into financial trouble, when they are paying balances on credit cards, for example, with other credit cards, not cash. In the past, cash was always used for transactions but today, cash is rarely used.

What exactly is fiscal literacy?

Fiscal literacy is the intersection of financial, credit, other debt management, and the knowledge necessary to make fiscally responsible decisions. Fiscal literacy includes understanding how checking accounts, saving accounts, and credit cards actually work and how to avoid debt. Fiscal literacy impacts everyday decisions that an average family makes when trying to balance a budget, buy a home, as well as long-term goals such as funding their children’s higher education and ensuring a comfortable income upon retirement.

A lack of financial literacy is a global phenomenon found in both developed and developing countries throughout the world. Globally people lack a strong grasp of basic financial principles. It’s also getting more complicated for consumers to understand various financial products.

Here are four trends unique to modern day investing for consumers:

Consumers Make More Direct Fiscal Decisions.

Planning for retirement is one example of this particular trend. Generations in the past depended on pension funds their former employer provided, but now there are decisions to be made between various 401(k) plans, IRA plans, and other retirement products.

Longer Life Spans.

People live much longer than generations in the past, so more savings is needed to make it comfortably through the Golden Years, particularly with skyrocketing healthcare costs which hit senior citizens the hardest in the final years of their lives.

Lack of Government Aid.

It used to be that Social Security could be relied on for retirement years but since the Social Security Board of Trustees is estimating the fund will be depleted by 2033, other avenues of fiscal security must be explored. At best, Social Security should be viewed as supplemental income by the public.

Too Many Fiscal Products.

There are endless banks, credit unions, brokerage firms, credit card companies, financial planning firms, insurance firms, and mortgage companies to choose from, and unfortunately, some are better investments than others, creating confusion and frustration for many people.

Planning for everyday expenses, let alone retirement, is overwhelming at times. Take a breath and do some research. It’s important to understand how adjustable rates mortgages, for example, are both advantageous and detrimental to the consumer. There is a direct correlation between those who are more fiscally educated and those who are not. Those who aren’t tend to buy on credit more often, pay higher interest rates as well as fees and penalties associated with credit. Any improvement in fiscal literacy will yield positive results. It’s important now more than ever because consumers are asked to do more of their financial planning and the products are becoming equally more complex to understand.

Many organizations offer free fiscal literacy information, including the U.S. government through the Office of the Comptroller of Currency via the Treasury Department. It offers a Financial Resource Directory.

David Milberg is an entrepreneur and financial analyst from NYC