Learning financial literacy

By Linda Stern

WASHINGTON (Reuters) - The financial services companies would like you to know that April is Financial Literacy Month.

Americans, they say, are fiscal illiterates who spend more time learning box scores than they do reading the small print on their credit card bills. That, as a nation, we don't understand how our money is saved, spent or invested -- and that we pay a hefty price for our ignorance.

They may have a point, but isn't it also sort of their fault?

Financial services companies are more difficult to understand than car mechanics or surgeons, according to a new survey. And most of the time, when those self-same companies try to "teach" financial literacy, what they're really telling you is why you should buy their product over somebody else's.

It's hard to learn when you don't know whether you can trust your teacher.

But persevere anyway. Folks who remain uninformed about finance tend to subsidize everybody else by paying high fees and investing in bad products. And there are some good, impartial sources of information out there. Take it slow, and by next April you'll know way more than you know now.

Here's how to become a self-taught financial whiz.

-- Take small bites. Break it all down into tiny lessons. Instead of trying to tackle "How to Invest," just focus on a small part of the picture: What's a value stock? What is price-earnings ratio? What's the difference between a mutual fund and an exchange traded fund? Go as slow as you need to, to nail one lesson before you go on to the next.

-- Plan to learn in six categories: banking, credit, budgeting, investing, taxes and insurance. Each will save you money.

-- Use the web's resources. There are many great websites that offer solid financial lessons. Read several, and you'll learn which ones you like the best, and get a balanced picture. Some to try are http://www.360financialliteracy.org, sponsored by the American Institute of Certified Public Accountants, http://www.mymoney.gov, a Federal government site, http://www.moneychimp.com, and http://www.jumpstart.org/, an industry clearinghouse of educational materials. Several no-load mutual fund companies, such as Vanguard Investments and Fidelity Investments also put a lot of decent free educational material on their website.

-- Break down the jargon. Most Americans think the financial services industry is purposely hiding behind technical terms and making money more confusing than it has to be, according to a new study by AARP Financial, a for-profit investment subsidiary of the nonprofit AARP (formerly the American Association of Retired Persons). The investment firm has created an entertaining online glossary of investment terms. The parent organization, at http://www.aarp.org, is full of consumer-oriented financial basics. Another good online financial glossary can be found at http://www.investorwords.com.

-- Visit the blogs, too. Dozens of do-it-yourselfers are publishing their financial discoveries daily. Spend one day of total immersion at http://personalfinance.alltop.com/ and choose the ones you like best to check regularly.

-- Use a financial management program, like Quicken or Microsoft Money. They are full featured, and demonstrate most clearly how spending, saving, earning, investing and borrowing all contribute to (or detract from) the bottom line. You'll need to invest some time initially to set up your records, but it's worth it.

-- Form an investment club. Sometimes, the best way to learn something is by doing it. But you don't have to start with big dollars. Get together with a few friends or relatives, and check out http://www.better-investing.org for directions on how to proceed. Start learning and investing together.

-- Do the math. If math wasn't your strong suit in high school, don't worry. Financial calculators can do all the hard stuff. But it will really help you understand your own situation if you take the time to look at real numbers. How many dollars in interest will that mortgage cost you? What percentage did you actually earn on the money in your 401(k) last year? Use online calculators, but also play around with plugging your own family financial questions into an Excel spreadsheet. The more you do this, the easier it gets. And the more you understand, the less you'll waste.

-- Refuse to be intimidated. Finances today are complicated, but don't ever let anybody tell you that they're too hard for you to understand. Insist that any financial advisors and/or product salespeople explain their product to you in terms you can easily understand. If they can't, just skip it.

(Linda Stern is a freelance writer. Any opinions in the column are solely those of Ms. Stern. You can e-mail her at lindastern@aol.com.)