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Benefits of Personal Finance[emailprotected]2024-08-16T20:40:23+00:00
Benefits of Personal Finance
Knowledge of how to deal with personal finances reap lifelong benefits that go beyond the individual. The positive effects permeate throughout the families and extend into society. As children emulate their parent’s prudent financial behavior, they lead fulfilling, abundant lives which their children naturally emulate. The benefits of personal finance education are naturally passed down through generations. People who practice these personal financial skills have a positive effect on their friends, causing the benefits to permeate through society. As you will see, the benefits of a quality education in personal finance is much more powerful and far-reaching than just the individual yet personal finance isn’t taught in most schools.
Personal Finance Literacy has Far-Reaching Benefits
Personal finance, which involves the act of budgeting, saving, and investing one’s assets, is a skill set that every person will need to exercise over the course of their lifetimes. The latest research and personal finance facts prove that this skill is conducive to a financially stable and happier lifestyle. The benefits of personal finance include an ability to effectively budget for costs, higher savings rates for retirement, and making prudent investment choices that will help the individual reach his or her financial goals.
Personal Finance Education Dramatically Improves Lives
One team of researchers decided to analyze the efficacy of simulations in producing behavioral change in students. Students who took Junior Achievement’s Finance park, a simulation for middle school students that sees students assume family and income scenarios, were split up into two groups after going through the park the first time. One group underwent financial education training while the other group did not. After 12 weeks, all the students went through the park for a second time. Over half the students in the group that received training were able to successfully construct a budget, a statistically significant amount over the only 1 student who was able to do so before the training (National Bureau of Economic Research).
http://www.nber.org/papers/w16271.pdf
Researchers took advantage of a survey recording self-reported savings rates, as measured by amount of unspent take-home pay along with voluntary deferrals (e.g. 401(k) plan), and the state the respondent went to high school in. This is used to determine whether state mandated financial education curricula have an impact on the amount individuals save. Those entering high school five years after the implementation of the mandate had a savings rate of 1.5 percentage points higher than for students not exposed to a mandate (National Bureau of Economic Research). http://www.nber.org/papers/w6085.pdf
Researchers asked individuals two sets of questions, one pertaining to basic financial literacy while the other related to advanced financial knowledge. The researchers then applied statistical techniques to construct indexes of financial knowledge. The probability of participating in the stock market increased 14 percentage points with a one standard deviation increase in advanced financial knowledge. In addition, a one standard deviation increase in basic financial literacy increases the probability of saving for retirement by 20 percentage points (De Nederlandsche Bank). https://www.dnb.nl
Parents Have an Impact on Personal Financial Habits
A research study analyzing the effects of parents’ values on children found a statistically significant positive association between parent’s savings rates and children’s savings rates (Journal of Economic Psychology). https://home.uia.no/ellenkn/WebleyNyhus2006.pdf
Only 23% of kids surveyed indicated that they talk to their parents frequently about money (Money Confident Kids). http://www.moneyconfidentkids.com/content/dam/money-confident-kids/PDFs/PKM-Surveys/2017_PKM_Results.pdf
Pregnant or parenting teens are more concerned about learning to save for a home in the future than learning how to save for college (Youth.gov). https://youth.gov/youth-topics/financial-capability-literacy/facts#_ftn8
How Today’s Young Adults Approach Personal Finance
58% of 18-26-year-olds set aside a portion of their income as savings (Bank of America). https://bankofamerica.com
44% of Americans aged 22-26 do their own taxes (Bank of America). https://about.bankofamerica.com/assets/pdf/BOA_BMH_2016-REPORT-v5.pdf
More than 20% of renters aged 18-24 overspent their income by $100 per month (Time). http://business.time.com/2013/01/17/todays-young-adults-will-never-pay-off-their-credit-card-debts/
81% of college educated millennials have at least 1 long standing debt (PwC). https://www.pwc.com/us/en/about-us/corporate-responsibility/assets/pwc-millennials-and-financial-literacy.pdf
How to Impart Personal Financial Knowledge for the Greatest Benefit
Just like a poor public education builds a weak foundation in fundamental skills such as arithmetic, mediocre financial education programs will not build the solid knowledge foundation necessary to overcome the financial obstacles an individual is bound to encounter. New initiatives can significantly reduce their learning curve by implementing the best practices outlined by major government agencies and education providers, both of which have invested hundreds of hours of research into the most effective practices on how to teach personal finance and facilitating financial literacy learning.
Christine Lagarde, managing director of the International Monetary Fund explains that the incorporation of technology as a means to disseminate financial education is necessary to allow programs to effectively impact low-income communities without the means to attend in-class sessions (International Monetary Fund).
https://www.imf.org
Champlain College’s center for financial literacy emphasizes that financial literacy topics must be taught in a course that students are required to take in order to graduate. https://financialliteracy.champlain.edu/research-advocacy/2023-report-card-introduction/keys-to-success/
“Many entrepreneurs struggle to understand payroll taxes, health care and other thorny issues… In other words, they don’t have the financial literacy to scale their businesses and attract investors.” – Daymond John, CEO of FUBU and Sharktank host
“The single biggest difference between financial success and financial failure is how well you manage your money. It’s simple: to master money, you must manage money.” – T. Harv Eker, author of Secrets of the Millionaire Mind
“I think people don’t understand compound interest because typically no one ever explains it to them and the level of financial literacy in the US is very low.” – James Surowiecki, journalist at The New Yorker and author of “The Financial Page” column
Educators of Personal Finance Help Students Reap Lifelong Benefits
Why is personal finance important? Research demonstrates that the benefits of personal finance include increased financial health and less stress in life. This is evidence that personal finance topics must be included in the education of all individuals. Financial educators, well aware of the benefits of personal finance, have made active efforts to incorporate personal finance topics into their education curriculums. They hope that training in personal finances will help learners avoid the perils of excessive debt, poor budgeting, and inadequate retirements saving.