April is National Financial Capability Month, but it’s better known as Financial Literacy Month. It’s dedicated to helping people understand how to make informed financial decisions and manage money effectively.
A recent report from the TIAA Institute finds that “adults with greater financial literacy tend to have better financial well-being.” In addition:
- Participants who had more financial knowledge were more likely to be saving for retirement.
- Retirement readiness tends to be better among those with greater financial literacy.
- For retirees, 88 percent of those who were the most familiar with financial literacy concepts said that their retirement has met or exceeded their expectations.
Financial literacy encompasses a variety of skills, but we’ll focus on some basics that are relevant to planning for a successful retirement. Whether you’re just starting your career or planning on retiring soon, mastering these skills will help you improve your future financial security.
Financial Literacy Begins With the Basics
A good way to start building your financial literacy is by understanding your current financial situation. Ask yourself some basic questions:
- How much do you earn and spend each month?
- How much debt do you have?
- Do you have any major expenses on the horizon?
If you know where you stand, you’ll be in a better position to plan.
You can estimate your pension by using the benefit calculator in Retirement Online to get an idea of what you’ll earn in retirement. (You can also check your future Social Security benefit online.)
Creating a Budget
Tracking your income and expenses can help you make better financial decisions, avoid debt, prepare for emergencies and save money.
If you don’t know how to get started, here are some tips on creating a budget. If you plan to retire soon, you can use our worksheet to create a post-retirement budget.
Debt and Interest Rates
Debt is not necessarily bad, but it can easily derail your financial plans if you’re not careful. Credit cards pose a risk because they are easy to use and may have very high interest rates. The average interest rate is about 21 percent.
If you have credit card debt and only pay the minimum each month, you’ll make little progress on reducing the balance while the interest you accrue every month adds up. For example, if you owed $1,000 on a credit card with a 21 percent interest rate and made payments of $40 a month, it would take you 34 months to pay off, and your total interest cost would be more than $300. On the other hand, if you paid $100 a month, it would be paid off in 12 months and your total interest would be just over $100.
As a NYSLRS member, you’ll receive a lifetime pension that will be based on your years of service and earnings. Building a retirement savings to supplement your pension and Social Security can create more financial security. It’s never too early or too late to start saving for retirement. To learn more about building your savings, read our recent blog post, The Right Time to Start Saving for Retirement is Now.
Follow our blog for future posts on retirement savings and related topics.