Two-time TedX speaker Natalie Torres-Haddad shares why financial literacy is important, and how to get in the right mindset to learn the language.
Financial literacy is one of the most valuable skills you can develop. Understanding how to budget, save, invest, and plan empowers you to build wealth no matter what your financial background.
Unfortunately, many people – especially in Black and Brown communities – don’t learn financial literacy skills from their families or in their schools.
As an immigrant Latinx woman who grew up in Inglewood, California, I experienced that firsthand. My family was very supportive in many ways, but we didn’t have discussions about financial literacy or generational wealth.
In my early twenties, I committed to changing my financial trajectory and I began investing in real estate. But there was a huge learning curve to building financial literacy skills and figuring out how to put all the pieces in place to create the future I wanted.
Now, as a financial literacy and mental health advocate, I encourage other people to write their own futures as well. But I also know that mindset is a huge part of achieving that.
Financial literacy provides the foundation to wealth creation and generational wealth. It includes knowledge of a spectrum of skills, such as:
When you understand the principles and strategies for each of these areas, you can be more thoughtful about the decisions you make day to day. And that’s important, because seemingly short-term decisions can have a significant long-term impact.
Take, for instance, the decision to continue renting or to buy a home. Renting may seem more expedient since you’re not locked into a long-term commitment. But owning a home allows you to stabilize your housing expenses and overall budget, and it enables you to build equity.
And home equity is a key differentiator for wealth creation. The U.S. Census Bureau found that homeowners’ wealth was 89 times that of renters.
But smaller decisions matter as well. Financial literacy helps you make smarter choices in your everyday purchases. If you’re in the habit of charging purchases to a credit card and carrying a balance month to month, understanding compound interest and how much you’re really paying over time can change the way you think about what you buy.
Learn more: How Financial Literacy Improves Your Homebuying Prospects
Cultivating financial literacy is an ongoing, long-term process. Establishing the right mindset from the beginning can help you to stick with it, even when the road feels extremely long.
Here’s how to do it.
Trying to learn everything at once can stop you in your tracks because it feels too overwhelming.
That’s why it’s best to start with one thing. Learn one new concept or skill, then move on to the next one.
Let’s say you want to buy a house. You start reading about the process and your head starts spinning: “I want to buy a house. To do that, I need to get a loan. But to get a loan, I need to get preapproved. And to get preapproved, I need to get my financial documents together. But I don’t even know what documents I need. This is too stressful!”
Looked at as a whole, the homebuying process is too stressful. But when you take it step by step, you realize it’s absolutely doable. You just need to take it a bit at a time.
Here's an easy first step: Check your FICO® Credit Score for free using Home.com's ScoreGenius
That’s how it is for any financial goal. Even if you’re at the very start of your financial literacy journey, you need to go slow.
Maybe you’ve never created a budget before. Don’t expect to become a budgeting whiz overnight. The first step might be reading some articles or watching YouTube videos on simple budgeting and expense-tracking strategies.
Then you try one of those methods for a month, or even just a week or two, and see if it works for you. You learn as you go. Once you have a basic system for tracking your expenses, you start setting savings goals and incorporate those into the budget.
It’s a gradual process – no one becomes a financial literacy expert overnight.
Surrounding yourself with people who support your financial literacy journey is crucial to your success. But who you need on your team depends where you are on your wealth-building path and what your goal is at a given time.
If you have some money to invest or you want someone to help you make a comprehensive financial plan, a certified public account (CPA) or certified financial planner (CFP) will be an important resource for you.
If you’re buying a house, then you’ll need to find a lender you trust and a loan officer with that lender who can guide you through the process.
But maybe you’re still learning the basics and want to level up. In that case, a money mentor can really help you get focused on your goals and develop a health mindset around money.
Or, if you’re not ready to work with a professional, talk to your friends and family about what you’re trying to do. They may have similar goals to yours, and you can do accountability check-ins with one another to make sure you’re staying on track.
You can also go to local investing groups or meet-ups centered around financial literacy. That will help you connect with other people who share your focus and can give you insights based on their experiences.
However you choose to approach it, you want to have someone to whom you’re accountable. This person should understand exactly what you’re trying to achieve, the commitments you’ve made to that goal, and the type of support or feedback you expect from them if you’ve made a mistake.
Related reading: Why Homeownership Holds the Key to Wealth Creation in America
Whatever your current goal is, whether that’s buying a house, purchasing a rental property, or getting out of debt, talk to your family and friends about it. Find out whether they have a similar goal or have already achieved what you’re trying to do.
It’s OK if they don’t. Many people, including those like me who are first-generation homeowners from immigrant families, don’t grow up learning financial literacy skills, so you may have to forge the path. But if they do have a similar goal, or know someone who has achieved it already, they can provide insight, accountability, and references to others who can help you.
Even if you’re the first to take this step, starting the conversation about money is powerful.
For one thing, it creates a foundation for setting boundaries. If you’ve been a spender your entire life, people may be taken aback at first when you decline invitations or outings based on your finances. But explaining where the shift is coming from helps them understand why you’re changing your behaviors.
You may also open the door for them to create money goals for themselves. I’m often the first one among my friends and family to bring up tough money topics, whether that’s goals, investing, or feeling burned out. Although I might hear crickets initially, I’ve had loved ones approach me later and say they felt the same way I did, but they didn’t feel comfortable voicing their experiences until I opened up.
Related reading: How First-Generation Homebuyers Can Start Building Generational Wealth Now
Hopefully, you have friends and family who are supportive and respect your financial boundaries even if they don’t share them. But even in that best-case scenario, you may need nerves of steel.
When I first shared with my family that I planned to buy an investment property, they were full of questions – many of which I didn’t know the answer to. Realizing how much I still had to learn shook my confidence, and I delayed certain decisions because I was unsure of myself.
I did purchase my first rental eventually. But I probably would have bought it, and started gaining equity, earlier if I had trusted that I would learn everything I needed to know along the way and that I didn’t have to have all the answers up front.
So, don’t psych yourself out. Taking action and learning as you go will always be better than waiting until the “perfect” moment. There is no perfect moment to develop your financial literacy skills, and the best thing to do is start today.
The unfortunate reality is that some people have outdated – and racist and sexist – ideas about what wealth looks like. I purchased my first investment property in my 20s, and when I went to the closing, the mortgage broker, who was a male, questioned whether I should make the purchase on my own. He suggested that I should co-sign for the loan with my parents or a boyfriend, rather than invest independently.
Given my age and how new I was to real estate, I was already dealing with self-doubt and imposter syndrome. I didn’t need anyone else questioning a decision I had put so much time and so many resources into making.
Needless to say, I never worked with that broker again. But the only reason I didn’t waver in my decision is that I had a vision for building my own financial future and I stayed focused on what I knew to be the right next step.
Financial stress can take an enormous toll on your mental health and overall well-being. Everyone has their own horror story from the housing crash of 2008, but I remember that as the first time I had a mental health breakdown. I was a grad student at the time, and I lost my job while having a mortgage to pay.
I felt completely isolated because none of my friends could relate to the pressure I was under. They all rented their places and could move back home if they lost their jobs. But I really felt the weight of being a homeowner and the fear of falling behind on my mortgage.
I started having insomnia, which I had never experienced before. I felt hopeless and agitated and alone. My friends and family were shocked when they found out I was struggling because they saw me as the person who had it all together. But I was suffering badly.
You don’t have to live through a frightening recession to have a money-related breakdown. A loss of income, worries over student loan debt, living paycheck to paycheck – all of these can create a dangerous mental health spiral.
If you find your mental health suffering because of money struggles or debt, you do not have to go through it alone. If you can’t afford a therapist, talk to your county’s public health department. They will often provide free or low-cost counseling services.
Ask your employer if they provide any type of mental health support as well. Many companies now offer employee assistance programs that include counseling for anxiety, depression, and financial problems.
This is also where it helps to be part of an investment or accountability group. Other people may be going through the same things, or they’ve been where you are. Hearing that they’ve improved their circumstances or learning what helped them can make all the difference when you’re in a dark place.
Learning about financial literacy will create new opportunities for you. But it’s something that happens over time, and it’s important to create a framework that allows you to learn and find support as you move in the direction of your money goals.
