A recent study conducted by the Securities and Exchange Commission (SEC) uncovered some harsh truths about the average American consumer. As a requirement of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Study Regarding Financial Literacy Among Investors was conducted to test the strength of financial understanding among the American population. Unfortunately, it was a test that we failed. The summary reads:
“Studies reviewed by the Library of Congress indicate that U.S. retail investors lack basic financial literacy. The studies demonstrate that investors have a weak grasp of elementary financial concepts and lack critical knowledge of ways to avoid investment fraud.”
As the SEC discovered, our population is in desperate need of a financial refresher course. While it may be tempting to hand your finances over to a business manager, accountant, or even a spouse, what happens if your monetary helper is suddenly unavailable? The short answer is two words: credit repair. Without a basic grasp of personal finance, the danger of bad credit is imminent. Your lack of knowledge could lead to:
Spending too much is only noticeable to those who understand limits. Ask yourself the following:
- How much money do you have in the bank?
- What are your credit card limits?
- How much debt do you currently have?
If you cannot answer these questions, overspending is probably on your list of bad habits already. This is unfortunate news for your credit utilization ratio, or the amount you owe vs. your total credit limit. A ratio of 25 percent or greater can result in a lower credit score, one that can only be remedied by debt reduction and a change in lifestyle.
• Money lost.
A low credit score means higher interest rates. When you are paying more on consumer credit cards, auto loans, insurance, mortgages, etc., the result will have an impact on your savings account. Depleted resources will only worsen your situation as time passes, plunging you further into debt and accelerating your credit repair needs.
• Squandered opportunity.
The average person is met with countless opportunities in life. An educated investor is armed with good credit and knowledge in his corner. Although his neighbor may have the same financial resources, his inexperience prevents him from reaping the same rewards. Opportunity passes over those who do not know when to reach out and grab it. If you are struggling with the basics of investing, what does that mean for your future?
Let’s recap. Lack of education is likely to lower your credit score, cost you money, and prevent you from achieving a stable lifestyle. When added together, the sum of these ingredients equals disaster. Day-to-day living may seem harmless, but lack of knowledge also means lack of planning. The bottom line: Don’t limit yourself by becoming a member of the SEC’s group of financial dunces. Education equals power, and this case is no exception. Take a lesson from the SEC’s findings and brush up on your money skills. Your credit repair goals depend on it.