The greatest way to gain financial freedom is through increased financial literacy. What is financial freedom? An aspirational concept, defining financial freedom differs from person to person frequently depending on one’s perspective and lifestyle. Despite that, a common element of achieving freedom includes forms of control – expressed as influencing your income streams both earned and passive, managing investment holdings, having power over cash flow, and curbing worries about where your money flows to and from. Ways to achieve that freedom include confidentiality, making purchasing decisions, having an adequate cash emergency fund, regulating your debt levels, and understanding specific terminology and concepts, all of which increase with complexity throughout your life. Education on financial concepts is a key to unlocking your true potential. It behooves both you and your loved ones, not only to be wise about your money, but to teach them to be wise about their money as well.
Literacy Starts Young
To give the next generation the best financial leg to stand on, it’s never too early to begin the literacy lessons. Start educating your loved ones about finances in childhood with an allowance or money earned from a job. These lessons allow the child to make their own buying decisions based on the funds they have available. Allocating a portion of funds into a piggy bank, either physical or virtual, to savings is another aspect of learning, which teaches about delayed gratification and identifying a future need.
Another lesson is opening a bank account and educating them about how to keep their own books as I once did. In today’s technology age, it is imperative for your children and pre-teens to understand both traditional (think ATMs and debit cards) banking tools and cutting-edge options like virtual wallets and payment apps. The latter does not yet fully replace the US banking system, as many teens incorrectly believe.
Young adults have lessons to learn as well, such as paying taxes with their first W-2 job. Guiding them step-by-step through completing the W-4 form—and not handling it yourself—is an excellent way to teach and opens the doors to conversation. Learning fundamental elements and gaining skills like paying a monthly bill is a critical skill often overlooked. As children mature, gaining access to a financial mentor can help guide them through the money minefield and avoid embarrassing missteps. Teaching them to open a retirement account early and investing now, even in their youth, offers them the best shot at future financial freedom.
Adult Literacy
Even adults need to be educated about their finances, as this enables both men and women to earn higher incomes, maintain their individual credit, and manage cash most effectively. Learning how to handle credit cards or lines of credit for convenience rather than funding a lifestyle that is beyond your means is a critical skill. Financial ignorance can lead to running up credit card debt and “learning a hard lesson” about 29% compounding interest. It’s wise to know how to avoid financial pitfalls in the first place.
By educating yourself, you avoid becoming perpetually dependent upon your partner, investment advisor, CPA, or close friends to make your own financial decisions. Keep your finger on the pulse of your finances and empower you to achieve your definition of financial freedom. The value of your financial education comes in knowing how to steward your money to work for you. This involves all areas of your financial life, be it credit, savings, investments, life insurance, or providing for your dependents.
Have you already achieved financial freedom? If you already have a wealth of knowledge about finances and how to steward them well, consider becoming a financial mentor to the younger generation. By seeing how you’ve been able to make your money flourish, your children, teens, and young adults will be eager to do the same.
Literacy for the Wealthy
Yes, even the wealthy need freedom through financial literacy. As your wealth increases, your financial freedom likely looks a little different than decades earlier. Perhaps you’ll be enjoying an early retirement or routinely making large purchases or investments; including additional homes or private investments. Advanced education with your wealth gives you the skills and expertise to understand more complex financial products and investments.
Some ideas for literacy among the wealthy include:
- Partnering with professionals that truly educate you about their products and services
- Seeking a mentor with insight on a particular subject matter you seek to better understand
- Carefully filter your offers and opportunities by saying no when necessary
Having a conversation with your life partner will also provide a safe place for each of you to learn from one another. These conversations increase the freedom for both partners to enjoy life together rather than one shouldering the emotional load and execution of a plan.
It doesn’t matter who you are, how old you are, or how much money you have, being financially literate will only help you in the long run by giving you the freedom to enjoy your wealth—and your life.
At Organized Instincts, our seasoned team of daily money managers will help you find your path to freedom. Schedule a conversation today and learn how our team promotes financial literacy.