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A brainchild of the Eastern Caribbean Central Bank (ECCB), Financial Literacy Month is observed in October in member countries of the Eastern Caribbean Currency Union (ECCU). The aim is to educate individuals and families on the basic elements of financial management, in turn preparing them to make responsible financial decisions.
In keeping with this months theme Save and Invest Today Enjoy Tomorrow, Scotiabank shares some healthy financial management practices, with specific emphasis on saving and investing, and managing credit.
Managing Credit
Despite a recession, borrowing may still be necessary. Managing credit now brings future financial rewards. Wise use of credit, combined with regular saving and investing, can be a powerful tool to help you achieve your financial goals. However, abusing credit privileges may compromise your credit approval rating when seeking loans for home renovations, mortgage, car or even a business idea.
Scotiabank recommends some best practices to help you manage your credit and establish your creditworthiness.
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- Establish healthy credit habits
- Pay bills (water, telephone, cable) on time and online! You can set-up direct bill payments from your bank account. This is automatic, convenient, saves time and helps your credit rating.
- Get a credit card. A definite convenience, credit cards have become necessary for almost everything from booking a hotel to renting a movie. Heres how to use your card responsibly:
- Pay credit card bills on time. This helps you build a solid credit history and avoid high interest charges. If you tend to run up credit card charges that exceed your disposable income, use your debit card instead. This way, the money comes directly out of your account and you limit your spending to what you can afford in cash.
- Limit yourself to one or two credit cards. Record-keeping is simpler and there is reduced temptation to abuse credit. You also need to educate yourself about the various card options and which ones are best suited to your individual needs. Some credit cards typically carry higher interest rates and fees, whilst others carry rewards for spending.
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2. Be a smart borrower
Debt can be good or bad, depending on how you use it. Good debt is debt incurred to acquire something that represents an investment in your future. Examples of good debt are education loans and land loans. An example of bad debt is incurring debt to fund lifestyle purchases that offer no long-term value to you or your family.
Key to making debt work for you is to be proactive. Here are some effective debt management strategies:
- Pay down expensive debt first. For instance, you have money in a low-interest savings account but you also have a balance on a high-interest credit card. It would be wise to use some of that savings to reduce the debt.
- Consolidate debt to save money. If struggling to reduce expensive debt, consider taking a line of credit or loan to consolidate your debts at a lower overall rate. Youll definitely save on the interest charges. It will also be easier to keep track and take control of your finances.
- Use savings and cash for lifestyle needs. For instance, it is wise to use savings to pay for a vacation, rather than take a loan. Even better, plan ahead. Open a separate vacation account and contribute a little to it each month.
- Credit history. It is important to maintain payments up-to-date as your credit history will influence your ability to qualify for a loan.
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3. Job stability
Consider your job stability, the viability and sustainability of your specific industry and by extension, your long term ability to service debt. Remember, a steady job and a good credit rating improves your chances of securing bank financing. One way of insulating yourself from financial loss is to generate additional revenue through other streams of income. Yes, with increasing unemployment, jobs may be difficult to come by but you can still generate other income streams. For example, a teacher may give extra lessons. Why not plant a vegetable garden and sell the produce or develop a skill (e.g. cake decorating, plumbing, electrical installation) and be paid for it by seeking out job opportunities?
As we embark on Financial Literacy Month, remember the theme: Save and Invest Today Enjoy Tomorrow. Practicing these tips will contribute to a culture of responsible financial management. Saving and investing are the cornerstones of building wealth and achieving financial independence. Managing your credit now will bring you future financial rewards. So, establish healthy credit habits, be a smart borrower, and save, save, save.
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