What Is Money Management?
To define money management, let’s break it down. Management refers to “dealing with or controlling.” So money management refers to dealing with or controlling money. The strict definition sounds simple enough, but money management entails so much more. Effective money management encompasses planning for the future and sticking with your plan over the long term. Your emotions will be involved. You will encounter surprises and emergencies that will make you rethink your decisions and consider changing the plans you have set for your money. Money management involves research, careful consideration of many variables and paying close attention to the details of your options.
What Is Money Management?
What is money management as defined by the National Financial Educators Council:
Exercising the skills and knowledge on financial matters necessary to confidently take effective action that best fulfills an individual’s personal, family and global community goals.
An Informal Definition of Money Management
People of all ages would be well served knowing the answer to the question, “What is money management?” Money management is the process of shrewdly managing, tracking, and investing money in order to prevent your financial life from falling in disarray and instead secure your financial future. When crafting data-driven financial education programs, curriculum editors should dedicate one module of the program to answer the question, “What is money management?” Competencies in money management are necessary to achieve a healthy financial lifestyle.
Experts Define Money Management
“A professionally managed approach to meet my financial goals” – Joshua Scheinker, Janney Montgomery Scott LLC
“This is one aspect of personal finance, which generally would include management of liquid and possibly illiquid assets” – Glenn Moore, Gibraltar Financial
“The management of cashflows (income, expenses) and ultimately the allocation of savings through different vehicles dependent on purpose and time horizon for them.” – Anthony G. Lanza, Spectra Investment Management
Data Driven Money Management Programs
Surprisingly, while knowledge of money management is necessary in allowing individuals to make smart financial decisions, it is not sufficient by itself. An application of the knowledge accrued through financial literacy programs is required to make a difference in the financial well-being of individuals. A well-crafted financial education program will recognize this and design the curriculum accordingly to encourage students to apply what they have learned in the classroom settings to their own lives.
The Canadian Task Force for Financial Literacy declares that effective programs will use lessons gleaned from behavioral economics to recognize the disconnect between knowledge gained during lessons and real-world application of that knowledge to improve program participants’ financial well-being (Canadian Task Force for Financial Literacy). http://publications.gc.ca
The Citi foundation recommends the development and piloting of new models of financial education based off what has been learned about what works best (Citigroup). https://www.citigroup.com
Adults Don’t Realize They Need Money Management Education
65% of adults in the United States report using a savings account (National Foundation for Credit Counseling). https://www.nfcc.org
Only one in five (19%) say they are not knowledgeable about annuity products in retirement (1 or 2 on a 7-point scale), suggesting many overestimate their knowledge of annuities (The American College). http://retirement.theamericancollege.edu
More than one in four (27%) U.S. adults admit to not paying their bills on time (National Foundation for Credit Counseling). https://www.nfcc.org
“Without financial literacy, divorce rates soar, families rupture, and women stay with abusive men for financial security. A lack of jobs contributes to riots and illegal activity. Name any situation and it goes back to money. We need to focus on poverty eradication.” – John Hope Bryant, CEO of Operation HOPE
Only 23% of kids surveyed indicated that they talk to their parents frequently about money (Money Confident Kids).http://www.moneyconfidentkids.com/content/dam/money-confident-kids/PDFs/PKM-Surveys/2017_PKM_Results.pdf
Researchers at NBER demonstrated the positive relation between the average stock market participation between the individual’s community and the individual’s participation rate in the markets. This effect was proven to be stronger in more sociable communities (National Bureau of Economic Research). http://www.nber.org
People Need to Know What Money Management Is
The ability to handle money and keep track of its inflows and outflows is so important that financial educators would be well served dedicating an entire section of their program’s curriculum on answering the question, “What is money management?” When trying to educate individuals on what money management is, a course that is part of a high school curriculum would go a long way in ensuring that every high school student is offered this advantageous knowledge in life.
“We need to have financial literacy in America, not just complaining about obstructionism. We need solutions.” – Kabir Sehgal, bestselling author of 8 books