The biggest problem we experience in this world is how to manage our personal finances. Most of the salary earners or teenagers who receive pocket money don’t know how to use money effectively; thus, they are unable to change their economic status. In fact, almost half of all American households and two out of three families of color, do not possess adequate savings to sustain themselves for a minimum of three months if their income was disrupted. Similarly, one-third of African Americans and Latinos do not own financial assets. The first solution to efficiently address poverty is to dismantle systemic impediments to economic mobility and financial security. It will formulate an integrated systems approach that is necessary, not only for income but also, for increasing assets for poor households.
Assets comprise economic resources such as savings, a college education, emergency savings or a home. A family’s assets (what they own) minus what they owe constitutes its wealth. Income and wealth are distinctly defined; the latter refers to the stock of assets of economic value in a home. On the other hand, income is defined as the flow of these assets in a financial system.
The motive of generating wealth may not seem applicable to the situation of those with minimal wages, hence, acquiring a basic level of savings is an important first step for people to break the cycle of poverty. Without the perspective of saving, even a small disruption such as illness can push people into significant expenses that can disrupt their economic well-being.
In short, income allows people to get out of poverty; assets are how they stay out.
In fact, students should be taught on how to manage their limited finances and to avoid misusage which can back pedal their finances. Information on saving and investments on early age can help them in future for they will be getting returns before they work. In cases where there is little employment, or the supply of labor is higher than what is required they may start their company or business. Also, information on how to efficiently spend their money is fundamental to enable them to plan for the future.
The primary goal of saving is to invest, generate returns, prepare adequately for emergencies and to plan.
As one grows older, he or she acquires an additional individual and non-personal to cater for. As such, his or her need to raise the core living standards becomes higher; thus, leading to higher spending which results in a higher household budget. In many families, the breadwinner has to use more funds to cater for the dependents. If his or her financial income is not enough, it leads to credit which can subject them to dire consequences. Lower income communities often encounter fines issued in the court, fees, and penalties for slight transgressions that quickly escalate debt. In extreme cases, they may be imprisoned for failure to pay their dues. The tax system also prevents lower-income people from benefiting from the wealth building public subsidies which are in the form of tax payments, credits, elimination and preferred rates that richer families utilize to offset the costs of homeownership, enable their children to go to school and save for retirement.
We can reverse the impacts of these systemic inequalities and the tools, knowledge, and experience that already exist to make this possible. Over the past two decades, the asset building field formed crucial and innovative steps to promote economic mobility among lower-income households. It developed and tested the variety of strategies and policies that help struggling families to invest, save, and preserve financial assets.
The Key emerging innovations of the financial system that are expanding access to savings, credit, and investments for many of lower income families include SACCOS, NHIF, and child care assistance. There are also private and public policies which protect workers from income instability. The financial system is constructed on remodeling financial security can assist families to get hold of skills that enable them to design and maintain a household budget, establish long-term goals, and efficiently navigate financial products and services. Parents can also direct their budget through childhood programs, elevate their credit score, provide goods and services, manage their debt, begin a college savings plan for their children and plan for retirement.
After joining an MAF Lending Circle, Helen built her credit and moved her family from a
single room in a crowded house to a three-bedroom apartment. (Mission Asset Fund)