Becoming “Financially Literate”
By Jared Price (MSB’23)
Navigating finances can be stressful and complicated, but small business owners can access a plethora of resources to increase financial literacy. Here at HMFI, we aim to empower individuals by promoting financial independence and stimulating economic growth in the D.C. area. As a non-profit located in the DMV, we’ll be focusing on financial literacy as it pertains to D.C., Maryland, and Virginia. However, our suggestions and advice below are still applicable to anyone looking to improve their financial knowledge! Here’s what we’ll cover (click on titles to skip to section):
What is Basic Financial Literacy?
Simply put, financial literacy comes from the ability to understand and apply a variety of fundamental financial skills, including personal finance management, budgeting, borrowing, and investing. By grasping these concepts, we can make smarter decisions with our money and avoid major financial issues, preparing you for emergencies, debt requirements, investment opportunities, and beyond. Those small business owners who master these concepts are less vulnerable to financial fraud and better suited to run their business.
Financial Literacy Statistics
Before discussing the keys to financial literacy, it is first important to establish how applicable and necessary these skills are within our community. A financial capability survey conducted by the Financial Industry Regulatory Authority (FINRA) reveals the following key findings about District of Columbia Residents:
Making Ends Meet: 53 percent of Washingtonians are living paycheck-to-paycheck, compared to 55 percent of Americans who report spending more than or equal to their household income.
Financial Knowledge: On a test of five basic financial literacy questions, Washingtonians answered on average 2.92 financial literacy questions correctly, compared to the national average of 2.99 correct answers.
Planning Ahead: 58 percent of Washingtonians do not have a “rainy day” fund to cover three months of unanticipated financial emergencies, compared to 60 percent of Americans nationwide.
Managing Financial Products: 25 percent of Washingtonians have engaged in some form of high-cost, non-bank borrowing during the last five years, including taking out a payday loan or getting an advance on a tax refund, compared to 24 percent of all Americans.
The findings highlight the need for D.C. residents to take greater charge of their financial well-being. For small business owners in particular, learning the basics of finance will better prepare you to forecast future financial needs and manage risk.
How Can You Become Financially Literate?
Luckily, there are common-sense steps that small business owners can take to improve their financial literacy. Understanding the following core concepts is a great place to start:
Budgeting: Creating and maintaining a reliable budget is vital for any small business owner trying to keep their finances in check. Budgeting is the first key step towards financial literacy for any business owner, and it can be as manageable as using a spreadsheet to track monthly spending.
Paying Bills and Saving Money: Before applying for a loan, master your expenses, understand your debts and credit rating, and seek out potential cutback opportunities – you may realize you do not need a loan after all.
Borrowing: When it comes to borrowing, performing some due diligence goes a long way – compare the terms, interest, and fees from multiple lenders. Do not accept your first offer from a lender (no matter how tempting) without taking these steps first.
Mastering these concepts can be challenging on your own, but there are many resources available for those who want to try. There are various business books, financial magazines, blogs, and corporate podcasts that explore core concepts.
How Can HMFI Help?
Today, small businesses need all of the help they can get. Here at HMFI, we want to be a resource for D.C.–area businesses struggling in the coronavirus pandemic. We build financial literacy and promote financial independence for our clients through our Group Financial Coaching (GFC) program. Like our small business loans, GFC has a direct impact on the community around us. Our six-module curriculum teaches adults in low-income communities the necessary skills and knowledge to manage their money and grow their small business. This year, HMFI is taking another step forward. Our goal is to expand the reach of our Group Financial Coaching Program and engage in committed partnerships with more clients throughout the D.C. area. Please reach out if you are interested in getting involved!
Published on October 3, 2020