Much like a second language, it’s something we pick up on as children by hearing it spoken around the house. Maybe we see a father balancing the family checkbook, hear a mother talking about a retirement plan, or catch conversations about college funds or paying down credit card bills. The concept of financial literacy is something many of us are made aware of at an early age — but when it comes time to practice it as adults, we’re often left adrift in a sea of questions and uncertainties.
“Like any language, you have to learn it and regularly speak it to be fluid,” says Angelica Nguyen, finance management program associate at Grow Financial Federal Credit Union, which has two Columbia-area locations. “Maybe we’re lucky and our parents taught us, or we went to a really good school. But for the most part, we probably didn’t hear that language spoken a lot growing up. And when we become adults, we have to start speaking that language because we have to make financial decisions. But we have no idea if the choices we’re making make any sense, because we’re trying to speak a language that we don't understand.”
Financial literacy — the ability to budget, save, invest and pay down debt — is the backbone of financial stability. But according to Grow Financial, only about 58 percent of people report feeling comfortable creating a personal budget. Financial literacy isn’t just for the wealthy, but anyone who wants to live within their means and plan for the future. As a credit union designed to serve not investors, but its members, Grow Financial offers education that can help members speak that language fluently.
“It just becomes a part of your life,” Nguyen says. “It’s not something you learn once, and let go. You have to remember how to do it again later. It’s a constant process of learning, implementing, learning from that experience, and then doing it again.”
The basics of budgeting
The foundation of financial literacy is budgeting — understanding how much money is coming in, how much is going out, and how much income is left over. “It’s like the blueprint of a house,” Nguyen says. “It’s a blueprint of your financial goals and aspirations, and knowing whether you can achieve them because you have that budget down pat.”
Budgeting demands evaluating income against expenses, which go beyond essentials such as utilities, groceries or rent. Financial literacy also means including payments on loans or credit cards, subscription services, even calculating how much spent each month on dining out or other forms of entertainment. It can be a revealing process — wait, did I really spend THAT much on takeout last month? — but it’s absolutely necessary to ensure you’re living within your means.
There are different ways to hatch a budgeting plan. In a “zero-based” approach, you’re designating all your income for specific categories — think a portion for housing, another for groceries, another for entertainment — making sure your income minus expenditures equals zero at the end of the month. Zero-based budgeting can help you resist the temptation to overspend and more quickly pay down debt, but it may feel constraining to those who desire more financial flexibility.
Another alternative is a “50/30/20” strategy, where you designate not specific dollar amounts, but percentages of income toward each spending category — such as 50 percent for essentials, 20 percent for paying down debt, and 30 percent for other expenditures. Grow Financial members can also take advantage of a budgets widget that helps them track where money is going. Nguyen recommends budgeting, not around the gross income number on a pay stub, but the take-home amount minus insurance and taxes.
The secret to savings
Once you’ve determined where all your money is going and how much you can spend, it’s time to take a hard look at saving — whether that’s for something like a dream vacation or retirement. Savings is too often seen as an afterthought, Nguyen says, something to do with whatever money you have left over. “The way you could do better is through the concept of paying yourself first,” she adds. “Each time you get paid, put a percentage that you’re comfortable with into emergency savings, retirement savings or a vacation account, leaving it alone before you do anything else.”
Other ways to save include setting aside any cash you receive, or setting a savings goal and increasing it by 1 or 2 percent each year. Regardless of the method, try to not think of savings as a penalty, or an expense that doesn’t make you happy. “When you’re saving up front,” says Jared Barr, Grow Financial senior vice president for marketing, “you’re investing in your own future.”
By saving and cutting back on unnecessary expenses, you give yourself the option of making extra payments on debts like car loans or credit card balances, or even looking more long-term and exploring investment strategies. Some consumers set up automatic payments that route money to the mortgage company or a 401(k) account each month. Others like the satisfaction that comes with moving that money themselves — not just exercising their financial literacy, but relishing in it.
“It’s a mindset shift — you are the one actively transferring that money,” Nguyen says. “There’s a little more self-involvement and responsibility involved with that. You went in there and did this thing, because you wanted to do it.”
Grow Financial Federal Credit Union has tools and programs that can help its members learn the language of financial literacy. Contact Grow Financial Federal Credit Union at (843) 285-4424, visit their locations at 805 Highway 378 in Lexington and 163 Forum Dr. in Columbia, or see their website at GrowFinancial.org for further information. Right now, you’ll receive $200 after opening a Grow Financial checking account and making five transactions totaling $200 by February 15.