MacDonald 1 Documented Essay Final Draft The Importance of Being Financially Literate Growing up, I never really thought

about where money was coming from. All I knew was that we were well-off, and my family did not view financial well-being as a main stressor in life. However, this all changed when the economy went south in 2008. My father and mother both had difficulties finding and keeping jobs that paid enough to support a family of six. This unfortunate occurrence forced us to change our mindset about finance. Where we formerly saw ourselves as upper-middle class, we now are hovering in the poverty/middle class category. We were able to adjust by putting our needs before wants, and though we are not happy about this, we now understand that we have to live this way to survive. Being in this situation has taught me that in order to succeed, I would have to work hard and make the most of my situation. I had to change my view on school and living with the necessities. That being said, I find myself surrounded by college students, a large majority who live in my dorm, who are living in my same situation, however, they put their wants before their needs and prove to be financially illiterate. They find themselves in a place where they do not understand the finer aspects of finance, thus making them come off as ignorant and self-absorbed. My parents were able to instill a strong sense of financial well-being into my life, and they showed me that a person my age should be in order to lead a successful life. Before being able to fully understand the argument I am trying to make, it is important to understand the definition being financially literate (Taft 64). A working definition of the financial is a wide range of daily activities that are associated with the funds and includes activities such as check control to credit card management, budget preparation, purchasing insurance and investment (Taft 64). So then, financial literacy is thought to be an

MacDonald 2 understanding of all of these workings. However, it goes much deeper than that. An accepted way to define financial literacy according to D.L. Redmond is the ability to balance a bank account, budget preparation, save for the future and learn strategies to manage debt. A person is known as financial literate if he/she is able to manage his/her personal finance in life and changing society in order to which he/she must achieve necessary perception, develop his/her skills in this area and be able to understand the impact of individual's financial decisions on his/her own, others and the environment. (283) This way of describing financial literacy fits into the argument that I presented. Not only should a person understand the simple things like balancing and budgeting, but the importance of adapting to the changes in the economy and their everyday life. By having knowledge about these aspects allow a person in financial trouble not only know how to perform these simple tasks, but helps them make proper decisions about their financial well-being. If a person is in a difficult financial situation and fail to realize it, they are unable to conform to the new lifestyle they should be living. A person should be financially literate in order to lead a successful life. While many people correlate a successful life and a happy life, it may seem easy to refute this argument. However when discussing financial literacy and well-being, I did not take happiness into consideration. I put the success of life and the ability to enjoy life in two different realms, therefore the judgment on a successful life is placed solely on a persons financial stability.

MacDonald 3 Depending on what level of wealth a person falls in (poverty, middle class, or wealth) dictates how they identify with different aspects of life. Ruby Payne, author of A Framework for Understanding Poverty, details how each of the three categories view things in life like food, money, and education. For instance, the wealths perspective of food is that presentation is important, middle-class thinks quality is important, and poverty sees quantity as most important (Payne 42). These perspectives show that a person of wealth does not have to worry about having enough, like poverty, so they can focus on more detail. However, a financially unstable person that is trying to live in the category in wealth will run into trouble if they put too much emphasis on detail. They should focus more on making use they are getting enough to eat, rather than how good the food looks. For example, sometimes when I was hungry, I would eat ketchup sandwiches. Though this did not look appealing, it would ease my hunger, and that is all I really needed. Payne then details how money is handled in each of the three categories. Wealth saw it as an investment opportunity because they have enough to cover the rest of their costs. Middleclass sees money as something to be managed, therefore they have enough to be budgeted to different areas of life, and they could put some away to store. However, the poverty-stricken people see money as something to be used and spent (Payne 42). This may seem counterproductive, but the money goes to the necessities that these people need. When education comes into play, the wealthy can afford to go to a school of their choice, while people in poverty, if they even get the opportunity to go to college, pick a community college or state college/university. For me, William Paterson was not my first choice, Delaware Valley College was. However, if I went to DVC, I would have to take out over ten thousand dollars in loans each year. Because I knew how difficult it would be to go through the long process of paying back loans, I picked WPU because I would only be a few thousand dollars in debt after all four

MacDonald 4 years. If someone is going to be successful in life, they must live within their means, or as Payne displays, one of these three areas. When presented with financial difficulties, most people take the matter very seriously. They are proactive and try to educate themselves as much as they can about the topic. Living with a group of college students, this conclusion can be easily drawn. A common occurrence is hearing people ask each other financial aid questions and the best ways to go about getting loans and paying them back. However, there are some people that failed to get a complete understanding about their financial information, thus deeming themselves financially illiterate (Taft 64). For example, there is one particular girl that lives in the same building as me, and even attended my high school, who does not know where the money from student loans comes from. Now, what has to be understood is that this same girl thinks that a pack of chicken costs ten dollars a pound, thinks that making a hundred thousand dollars a year is not enough for a family of four, and does not know how credit cards work. Her financial knowledge and ability to comprehend the value of a dollar is severely lacking. Not only that, but she admits her family is in debt, yet they still continue to live in the wealth category. What is truly troubling is that she does not see the problem with living this way. It is frustrating to know that people cannot adjust their lifestyle even though they know that their perspectives are detrimental to their financial well-being. My parents, after hearing about this girl, were disappointed to find this out. They worked so tirelessly in supporting the family and completely adjusted so they could maintain this ideology with our new lifestyle. In fact, my dad, who formerly worked at a manager at a large distribution center, took a part-time job as a gas attendant while searching for a better job just so we had some source of income. While this took a blow on his self-esteem and value as a Boston

MacDonald 5 College graduate, I was proud of him for taking this step. I felt this because they had properly taught me that any source of income was better than being in the red. By instilling this in me and my three sisters, they could feel comfortable knowing that we would be better off than a large majority of our peers. Unfortunately, my oldest sister was unable to maintain herself financially, and is now home and having my mom guide her in paying back debt. However, my mom uses this as a teaching situation to show the rest of us the trouble we will be in if we do not approach our finances in a smart manner. My parents ability to teach us and try to help us succeed financially has made me a more mature person when dealing with finances. I can now look at my fellow college classmates and see how well my parents molded me and my mindset towards money management. Being financially literate required me to take a step toward becoming the mature adult we all strive to be, and although this is a daunting task, I am happy I was taught these lessons sooner rather than later. Even though it takes some responsibility that I do not always want, I am able to be independent and understand the workings of finance. This, from what I have seen, puts me ahead of many college students. While a few are in the same situation as I am, there are still the many that fail to understand the importance of being financially literate. I may not always get what I want, but I know that necessities surpass any wants I may have. Even though a new characteristic I have gained is frugality, I would much rather be stingy with my money rather than have to pay back debt. My parents prepared me for the future, and I am very fortunate that this important lesson has been taught to me.

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Work Cited Taft, Marzieh Kalantarie, et al. "The Relation between Financial Literacy, Financial Wellbeing and Financial Concerns." International Journal of Business and Management 8.11 (2013): 63-75. ProQuest. Web. 4 Nov. 2013. Ruby Payne. A Framework for Understanding Poverty Highlands, TX: aha! Process, Inc., 1996 pp. 42 43 Remund, D. L. (2010). Financial Literacy Explicated: The Case for a Clearer Definition in an Increasingly Complex Economy. Journal of Consumer Affairs, 44, 276-295.