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In March 2020, America confirmed its first coronavirus case. Since then, the economy has been in chaos. The unemployment rate soared from a record low to a 13.3% high. Before COVID-19, several news agencies had reported on higher-than-normal debt loads among Americans but believed there was little to feel concerned about in a booming economy. Now, many people regret taking on those debt balances. Financial literacy is one of the few tools everyone can improve to safeguard their finances from further harm.

The Advantage of Financial Literacy

At advanced levels, literacy of the financial world involves understanding how money markets work, as well as all the ins and outs of various investment types. People with high aptitude in this area also understand tax planning and credit score management; however, these are not standard requirements. At a basic level, literacy involves knowing how to apply financial principles to manage your assets and debts so that they work to your advantage. There are many different principles and approaches to money management, so people need to review their financial situations, skill levels, and goals to determine what might work best for them.

The Current State of the Problem

A global pandemic and a recession are not the only times that financial literacy becomes important. Everyone needs to have a financial plan in place, no matter how the economy is behaving. In fact, some advisors might argue that these plans are most important during market booms because it allows people to take advantage of opportunities that might not resurface again for many years to come.

In spite of this, an article published by the Society for Human Resource Management reports that only 30% of people assessed in one survey had created a financial plan in writing. They thought it was simply too time-consuming and complicated to complete. To make matters worse, 20% shared that they felt there was no one they could turn to for financial advice.

Because of this, many people learn financial literacy the hard way, such as by racking up high amounts of debt. This is a hard way to learn and for some, the recovery period can take years, especially when that process occurs during an economic recession.

The Importance of Changing Habits

The most obvious reason for creating change is that people suffer when they do not have the financial resources necessary to survive. Family incomes dip below the poverty line, and children might even begin to experience hunger at home. It’s just as tragic when people have high incomes but have taken on so much debt that they’re unable to meet their monthly obligations. They could have even more of a disadvantage because their incomes disqualify them from the relief options often available to lower-income families.

Financial literacy is also important because studies have shown that there is a direct correlation between financial health and mental health, as well as marital stability. Disagreements about money have consistently been identified as the top reason that marriages fail to last or become difficult. It can also lead to problems during divorce and contribute to lapses in child and spousal support.

Financial health is also important as it pertains to our professional lives. Workers experiencing financial difficulties have been shown to be more likely to experience the following negative impacts:

  • Unplanned absences
  • Reduced productivity
  • Greater distractions
  • Lower performance levels

The Special Importance During COVID-19

The coronavirus has created unpredictable dips and spikes in the market. Unfortunately, this has led to many businesses closing their doors temporarily, indefinitely, or even permanently. CNBC has reported that 1 in 10 Americans have applied for unemployment benefits as job insecurity soars. While many Americans worry about keeping their positions, what they agonize about most of all is what might happen to their finances if they lose their jobs.

Financial literacy helps to provide people with the tools they need to plan for the best and worst outcomes. Once prepared, it might not eliminate stress, but it nonetheless improves the ability to overcome financial and lessen emotional hurdles.

One of the big steps people need to make at this time is seeking ways to eliminate or reduce their debt loads. With less debt to have to manage, people can focus more on saving and investing for the future. At Financial Rescue, this is exactly what we help our clients to do. Contact us today for information about our tax and debt relief services.

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