K-State Research and Extension News
April 04, 2014
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Enhance Your Financial Literacy and Capability

Money Smart Month, celebrated in April, is a community outreach initiative designed to promote and encourage financial awareness.

MANHATTAN, Kan. – When we think about the literacies needed in life, we might think about reading literacy, math literacy or science literacy. But, what about financial literacy?

“(Financial literacy) is the knowledge and the skills you have to manage your money in ways that help you achieve your goals,” said Elizabeth Kiss, assistant professor in the College of Human Ecology at Kansas State University and family resource management specialist for K-State Research and Extension.

Kiss said another concept that takes financial literacy a step further is financial capability.

“Many of us have financial knowledge and skills, but our behavior doesn’t necessarily reflect that,” she said. “Financial capability is the behaviors that go along with achieving our financial goals.”

Money Smart Month is an annual community outreach initiative, celebrated in April across the nation and Kansas. It is designed to promote and encourage financial awareness for all ages through classes, workshops and various resources. Kansas’ financial education providers coordinate this campaign as an opportunity to educate the public and provide them with resources that can assist in making positive financial decisions. K-State Research and Extension is a partner for Money Smart Month Across Kansas.

Because it is celebrated in the same month as the April 15 income tax filing deadline, Money Smart Month gives people the opportunity to look at what they are doing with their money currently and think about how they can make the most of it through financial literacy and capability, Kiss said.

My Money Five is a set of principles Kiss recommends to keep in mind as people make daily financial decisions and set goals for the future. The five principles include: earn, save and invest, protect, spend and borrow. These principles can be used at any age, but especially for young adults who are just beginning their careers.

1. Earn

“Earning is at the root of our money management,” Kiss said. “Without income, we have little to manage.”

People should know their net earnings, she said. One of the reasons people pursue higher education is to increase their earning power.

2. Save and invest

“College education is an investment with the expectation of some sort of return,” Kiss said.

The challenge many students and parents have, she said, is trying to determine that return on investment. People shouldn’t make a value judgment that an education and career in one field is more important than another field, but they should understand that fields pay differently. The return on investment should be large enough to repay student loan debt while still earning a viable income.

Kiss suggested having a savings account separate from a checking account, as people are less likely to spend out of a savings account. Investing money at a young age and diversifying those investments is also important.

For example, a person who saves $1,000 a year for 10 years at an 8 percent interest rate from age 25 to 35, compared to someone who saves $1,000 a year from age 36 to 65 at the same interest rate, will come out with more money because of the power of compound interest, Kiss said.

People should also think about their retirement accounts, she said. If a person gets any employer matches for his or her contributions, such as 50 cents for each dollar he or she contributes, invest at least as much as the maximum matched and make the investment grow that much faster.

“Also, when you get a raise, don’t spend it all,” Kiss said. “Save some of it. Keep living below your means, and bank the rest.”

3. Protect

People who protect their assets are protecting against risk, she said. This means obtaining insurance, such as car insurance, homeowner’s or renter’s insurance, and health insurance, for example.

“We don’t always think about health insurance, especially if we are young and healthy,” Kiss said. “Just one episode, something that happens that requires you to be hospitalized, could really affect your financial future. But, if you have insurance, it could be less traumatic for you financially.”

Protecting assets also means not pursuing risky behaviors or getting into risky situations. People should remember to use seatbelts, get annual health exams, exercise, eat right and get enough sleep, she said. Practicing a healthy lifestyle is related to, and supports, financial capability.

4. Spend

Spend less than you earn, Kiss said. It helps if people know their short-term, medium-term and long-term financial goals and determine if they are spending in ways to reach those goals.

She said short-term goals might include tracking daily expenses. Medium-term goals could include a vacation, holiday spending or home projects. Long-term goals might be paying off a house before retirement, taking care of student loans or saving to help a child pay for college.

In addition to analyzing and planning for goals, people should also pay attention to where the majority of their money is currently going and how they might be able to cut back in one area to make more money available for something else.

“If you feel like your car is eating up a lot of your budget, is there a more efficient way for you to get transportation or with fewer maintenance needs?” Kiss said. “Also think about the services you have. You might be able to bundle some of them, such as cell phones, data plans, the Internet and cable, and save money.”

Many times energy costs are expensive and eat into a budget, she said. Look for programs energy providers might provide to help save on heating and electricity for the home.

5. Borrow

Most people have to borrow money at times and use credit cards, Kiss said. Managing the borrowing, not taking out too much and recognizing the requirement to pay it back is important. Student loans are a good example of borrowing just the amount needed.

“The least you can borrow is the best amount you can borrow,” she said. “But you need to weigh it out, too. Typically, students might work some, but there are also students who work 40 hours or more a week and go to school full-time. Look at the costs and benefits of the loans that you’re taking out to finance college. Your time might actually be better spent focusing on school, taking on a bit more debt and not working as much to get through school faster.”

For more information, visit www.moneysmartkansas.org and www.mymoney.gov.

K-State Research and Extension is a short name for the Kansas State University Agricultural Experiment Station and Cooperative Extension Service, a program designed to generate and distribute useful knowledge for the well-being of Kansans. Supported by county, state, federal and private funds, the program has county Extension offices, experiment fields, area Extension offices and regional research centers statewide. Its headquarters is on the K-State campus, Manhattan.

Story by: Katie Allen
K-State Research & Extension News

Elizabeth Kiss – dekiss4@ksu.edu or 785-532-1946