National Financial Awareness Day: The Importance of Financial Literacy

August 13, 2024

National Financial Awareness Day, celebrated on August 14th, provides an excellent opportunity to reflect on our financial well-being and sharpen our financial literacy skills. Financial literacy is the ability to understand and manage your finances effectively, which includes budgeting, investing, and understanding key financial concepts such as insurance deductibles. As the financial landscape becomes more complex, enhancing our financial literacy is crucial for making informed decisions and achieving long-term financial stability.

What is Financial Literacy?

Financial literacy encompasses a wide range of knowledge and skills that allow individuals to make informed decisions about their money. This includes understanding how to create and manage a budget, navigate debt, save for retirement, invest wisely, and comprehend the terms of financial products like loans, credit cards, and insurance policies.

A critical component of financial literacy is understanding how insurance works, particularly the concept of deductibles.

Understanding Deductibles

A deductible is the amount you pay out of pocket before your insurance coverage kicks in. This concept applies to various types of insurance, including health, auto, and home insurance. For instance, if you have a health insurance policy with a $1,000 deductible, you must pay $1,000 towards your medical expenses before your insurer starts covering the remaining costs.

Understanding your deductible is essential because it directly impacts your out-of-pocket costs and can influence your financial planning. Higher deductibles typically result in lower monthly premiums, making them appealing to those who are generally healthy or have emergency savings. However, in the event of significant medical expenses, a high deductible can lead to substantial out-of-pocket costs.

Tips for Improving Financial Literacy and Managing Deductibles

  1. Educate Yourself: Take advantage of online resources, books, and courses that focus on financial literacy. Understanding the basics of personal finance, including insurance terms, can help you make better decisions about your money.

  2. Review Your Insurance Policy: Familiarize yourself with the terms of your insurance policies, including deductibles, co-pays, and out-of-pocket maximums. This knowledge can help you plan for potential expenses and avoid surprises.

  3. Create an Emergency Fund: An emergency fund can be a lifesaver if you face unexpected expenses, such as a high medical bill. Aim to save at least three to six months' worth of living expenses to cover emergencies.

  4. Use Preventive Care: If you have health insurance, take advantage of preventive care services, which are often covered without needing to meet your deductible. Regular check-ups and screenings can help you avoid more significant health issues and expenses down the line.

  5. Leverage Tax-Advantaged Accounts: If you have a high-deductible health plan, consider contributing to a Health Savings Account (HSA). HSAs offer tax advantages that can help you save for medical expenses.

  6. Monitor Your Credit: Regularly check your credit report to ensure there are no errors and that your credit is in good standing. Good credit can lead to better terms on loans and insurance policies.

  7. Seek Professional Advice: If you're unsure about your financial situation or how to improve your financial literacy, consider speaking with a financial advisor. They can provide personalized advice and help you create a plan to achieve your financial goals.

Improving your financial literacy is one of the best investments you can make in your future. By understanding key concepts like deductibles and applying practical tips, you can take control of your financial health and make informed decisions that lead to long-term stability.

If you have questions about a bill or your ability to pay call our Financial Counselor at (641) 469-4311 or our Billing Office at (641) 469-4301.

 

References

  1. Consumer Financial Protection Bureau. (2023). Financial Literacy Basics. Retrieved from https://www.consumerfinance.gov
  2. Kaiser Family Foundation. (2023). 2023 Employer Health Benefits Survey. Retrieved from https://www.kff.org
  3. National Endowment for Financial Education. (2024). Building Financial Literacy. Retrieved from https://www.nefe.org