Financial Illiteracy is a Big Problem. Here are 4 Ways to Fix It

You can’t afford to not care about financial literacy.

April is Financial Literacy Month, a necessity since barely half of Americans are financially literate[5]. But not knowing how to manage money is an expensive mistake to make. Lack of financial know-how was estimated to cost Americans $388 billion last year – about $1,506 per person. It’s also correlated with lower credit scores, and those who have them are consistently found to pay more in late, overdraft fees, and interest charges [1]; denied credit more often[2], have credit utilization rates [3]; and face highers risk of defaulting [4].

And it’s not just your money that’s at stake either. Your mental health, dating prospects, and even marriage could also be in jeopardy because of a lack of financial literacy. Studies have shown that people with money problems are more stressed, are less likely to be considered a potential romantic partner, and have higher rates of divorce if their poor money management has saddled them with loads of debt.

But becoming financially literate is similar to playing piano or speaking French–it’s not something you just pick up, it’s a skill you have to learn and practice. Imagine you weren’t taught chemistry in school, would you have just figured that out on your own? Not likely.

4 Ways to Improve Your Financial Literacy

Financial literacy means having the knowledge, skills, and behaviors to make good money decisions. At its core, it’s having an understanding of fundamental financial concepts such as budgeting and saving, credit and debt, and investing. The other part of the equation is the ability to apply this knowledge in appropriate situations. Try the following steps to start thinking about money in a healthy way and taking charge of your finances.

1. Create a budget

Making a budget is one of the best crash courses on financial literacy you could ever take. This exercise will have you up close and personal with your finances and require you to know how much you spend each month and where that money goes. You’ll see your cash flow and become aware whether you’re spending more than you earn.

2. Check your credit profile

Your credit profile is like your financial reputation. It consists of your credit score and credit report, two key pieces of information lenders use to determine whether you’re trustworthy enough to borrow money or rent an apartment.

Most banking institutions allow customers to access their credit score for free via online accounts. Credit reports from each of the main credit bureaus (Experian, Equifax, and TransUnion) can be accessed or free once a year at AnnualCreditReport.com. You’ll want to verify that all personal information is correct like name and addresses, and that all accounts in your name are actually yours. If not, dispute incorrect information directly with the credit bureaus.

3. Making saving a priority

Everyone needs a financial cushion to fall back on in case of emergencies. An unexpected $400 expense can quickly spiral into thousands of dollars if a person has to borrow money (getting cash in hand quickly usually comes at steep interest rates). No matter how little you think you have to spare, even a few dollars a day can make a big difference when the unexpected strikes.

4. Get a handle on debt

Debt isn’t inherently a bad thing – when it’s under control. Unfortunately, many Americans find themselves with expenses that exceed their incomes and end up in debt, living paycheck-to-paycheck. Breaking out of this cycle means eliminating debt and getting cash flow under control. The best course of action for debt elimination depends on the type of debt, how much it is, and how old it is. Talk to a certified credit counselor to learn about all your options and determine which option is the best fit for you.