Financial literacy should not be overlooked when it comes to any sort of decision making especially as it relates to housing, food, and basic human necessities. We have indeed learned a great deal about how finances can be mismanaged when we watch the news and reporting on economic turmoil which is frequent and unpredictable. However, what can be predicted is one’s personal finances’ health by ensuring proper tools and protocols are in place to safeguard them. In essence, we must use this financial literacy that we learn not only through a classroom setting, but through the lens of history and how situations could have been better managed. There are a tremendous amount of resources utilized by economists and the news to determine these errors and make recommendations to improve upon.

            The financial collapse of 2007-2008 was a moment in US history which required substantial financial literacy in order to have been avoided. What happened was that buyers and borrowers did not make sound decisions based on their personal finances due to the fact that lenders were practicing shady tactics to inflate their own numbers. This cascaded into a domino effect of bad decisions and bad outcomes which lead to an ultimate collapse, leading many into debt, bankruptcies, foreclosures and more. Business were just as affected and many saw layoffs, downsizing, and even closures during this tumultuous time. Personally, I witnessed my parents lose their home that was recently purchased due to a misunderstanding and mismanaging of their finances during an ARM mortgage adjustment where interest rates were inflated tremendously and savings were not accessible. The film “The Big Short” depicts the era most precisely as they enact the entire collapse from the financier’s point of view on Wall Street.

            This economic downturn was one that shaped many in the global workforce today. There have been decisions made during this time to avoid a similar situations form happening in the future, and some have opted out of the economic landscape altogether if possible, by effectively only living within their means and not obtaining loans or mortgages. As we continue to see the effects of a new presidency in place making substantial waves in the current economy, it is even more crucial to ensure finances are properly managed and protected from possible future downturns, even if temporary.  With increasing tariffs, inflation, interests and overall price increases, and without adjustment in earnings to compensate, it is best to not borrow or change economic situations as frequently in case of a similar collapse or market adjustment. Even financial investments should be closely monitored as they could be used for government spending and provide a lower rate of return if demand is increased.

            As we have come to learn through principles of finance, creating balance sheets and statements to assess accordingly is crucial for business and personal finances to continue to grow and be accurate at every moment. With the increase in technology companies are now developing certain applications and tools to manage finances, and it has become easier than ever to correctly analyze and manage finances. I believe that financial literacy and knowledge is the best method we can implement as a society to improve our economic conditions as a whole as well as individually. Just as domino effects can create unfortunate downturns in economies, they can also have a positive impact if everyone applies their knowledge and understanding of the basic concepts. It is important to put history into context when dealing with loan applications, mortgages, incomes, investments etc. as they can teach us a lot about future standings in today’s world.

Now the question becomes, how are you preparing for success during difficult times? What is required for you to become financially educated?

Any insights offered here are personal opinion and not stated as facts.