What Is Financial Literacy and Why Does It Matter?

Here's a Tweet I saw recently. Seeking Alpha is an online community offering research tools, investment analysis  and forums for investors. 

Nathaniel E Baker
a senior editor at Seeking Alpha
https://twitter.com/natbaker

Stocks trim losses as traders realize lawmakers aren’t mentally equipped to do anything about any of this stuff anyway 

Seriously, we talk about teaching financial literacy in school. Maybe we should start by teaching it in Congress?

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What is Financial Literacy?

According to Investopedia, financial literacy is the ability to understand and effectively use various financial skills, including personal financial management, budgeting and investing. The lack of these skills is called financial illiteracy. 

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Having Money Doesn't Solve All Problems

Why? Consider these numbers, from another article by Tim Parker at Investopedia: "Why Athletes Go Broke." (See link below)

According to Sports Illustrated, 78% of NFL players who are retired for only two years file for bankruptcy, and after five years of retirement, 60% of NBA players suffer the same fate. According to a study in the  National Bureau of Economic Research (NBER) as well, close to 16% of the NFL players in the study that were drafted between 1996 to 2003 also filed for bankruptcy within just 12 years of retirement. 

If you know anything about NFL salaries, they really aren't all roses. The median salary is still under a million dollars a year, and you can bet they work hard for it. The average NBA salary is 7 million though. Hard to believe that 60% of these guys are flat broke in five years, except that (a) they never learned basics of handling money or (b) who they could trust with their finances. Kudos to the survivors. 

If you won a million dollars in a lottery, who would you turn to to help you figure out taxes and what to do with the rest?

Sooner or later this is a skill you must learn to master.
Don't wait till it's too late, or you could have financial disaster.

Learning to live within your means and setting aside for the morrow,
Is better than the alternative future of having to beg, steal or borrow.

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Check out my poem, Futures and Other Investment Ideas 

Related Link

Why Athletes Go Broke