August 14th is National Financial Awareness Day, reminding us how important it is to understand how money works and how to make sound financial decisions. Being financially literate can entail anything from understanding basic lending credit use to building an emergency fund to knowing how to plan for retirement.
The importance of financial literacy
There are five pillars of financial literacy: earning, spending, saving, borrowing and preserving assets. Learning how to do each of these effectively affects every aspect of your life, as you get ready for retirement.
You may be surprised how much this plays into your day to day. Whether you’re headed to the grocery store or launching a start-up, you need to know how much money you have, how much debt you have and how much you can afford to spend. The decisions you make every day will determine your long-term wellbeing.
Your financial literacy also has a big connection to your financial well-being. When you understand concepts like compounding interest, inflation and debt management, you build strong habits that in turn help save you from the stress of economic shocks and mounting debt.
Why financial literacy matters at every life stage
The skills that come with financial literacy are vital at every age. For instance, many children receive an allowance for completing basic chores. In addition to showing them the value of hard work, it also teaches them the importance of saving and budgeting. Kids can gain financial literacy by learning how to distinguish between wants and needs, so they know how to resist impulse buys and save money for larger expenses.
People typically get their first job and receive their first paycheck when they’re teenagers or young adults. This is often also their first time having real-world expenses, such as gas or groceries. Learning how to manage these expenses will set them up for future responsibilities, where they may earn more but will also have to handle more expenses. In their twenties, this may include school loans and rent; as they grow older and have kids, people have to plan for childcare, tuition and mortgages.
Throughout a person’s working years, they will consider planning for retirement, healthcare costs, estate basics and intergenerational finances. Having financial literacy throughout a person’s entire life will ensure they’re more prepared to retire at a reasonable age, handle health and home expenses and possibly leave money behind for their children.
Barriers to building financial literacy and how to overcome them
Financial literacy does not always come easily, and it’s important to be aware of common obstacles. Even if people can find resources, research shows 40% of consumers feel intimidated by the confusing terms, products and analytical concepts that come with financial topics. Many people lack the knowledge they need to manage their money efficiently. Misinformation also continues to be a big issue with the rise of social media, spreading “get-rich-quick” schemes instead of real, trustworthy financial strategies.
Overcoming financial literacy barriers take practical solutions, including bite-sized learning, trusted resources and community programs. Bite-sized learning, also known as microlearning, means breaking down complex topics into short segments over an extended period of time. It’s often done through videos, podcasts or apps. Additionally, seeking out reputable resources or community programs that may allow you to work directly with professionals who can support your goals can help.
Actionable financial literacy tips and habits
There are many simple habits that can help you manage your finances. You can try out budgeting methods, such as the 50/30/20 rule, to determine how to best allocate your money. This framework recommends dividing your after-tax (net) income into three categories: 50% for needs, 30% for wants, and 20% for savings and debt repayment.
In terms of building an emergency fund, the golden rule is to save three to six months’ worth of your essential living expenses in order to prepare for unforeseen crises. Utilizing automated savings helps you build your savings while removing the temptation of spending. You can do this through direct deposit splitting or recurring bank transfers that automatically spread your money out between your checking, savings or investment accounts.
Credit cards add another layer when thinking about financial literacy, and it’s important to understand credit scores, credit use and payoff strategies. A credit score is a value between 300 and 850 that predicts your likelihood of repaying debt, and it is used by lenders, landlords and insurers to evaluate how reliable you are. Responsible credit use means paying your credit card off in full by the due date and using less than 30% of your total credit limit.
Payoff strategies are methods used to pay off credit card debt. One of the most popular is the debt avalanche method, which recommends listing your debt from the highest interest rate to the lowest, paying the minimums on all of them and then putting the extra funds toward the debt with the highest interest rate. Once that debt is paid off, continue this method until all debts are paid.
How Financial Awareness Day can be a catalyst for lifelong learning
On this National Financial Awareness Day, evaluate your financial situation and decide how to improve your money management skills. You might attend public workshops or webinars, or look for books, or a financial podcast. Remember that everyone’s finances look different, and you can strengthen your financial literacy by choosing objectives that make sense to you.
You can come up with goals by first assessing your financial health. Gather your recent bank and credit card statements, cancel any unused memberships, check your credit score and calculate your net worth. Once you understand your financial standing, set up a money management plan equipped with a budget and emergency fund. Then, create a list of goals to remind you what you want to get out of this plan.
Resources and support from CB&T
At California Bank & Trust, we believe that financial literacy starts with financial knowledge. As a trusted community partner, we proudly offer a range of financial education resources designed to meet you where you are—whether you're budgeting for everyday expenses, opening your first savings account, or planning for a major life event, understanding how to manage your money is key to achieving your goals. Here you can access educational guides, financial calculators, and articles that offer financial tips no matter what stage you’re at.
CB&T also provides a Financial Futures Award Program, which gives educators the knowledge, tools and resources necessary to introduce financial concepts to students in kindergarten through eighth grade.
Clients can receive personalized help through these resources and can schedule a one-on-one consultation with one of our banking professionals to get a financial check-up and plan upcoming goals.