Three steps that can help vulnerable Americans overcome financial fragility investinyou (In partnership with acorns.)
In the personal finance course I teach at the George Washington University, we discuss a few potential safeguards against financially fragility:. Use a simple income-and-expense statement to track your income each month and how much money you spend. This helps you manage your liquidity.
Set a goal of saving each month, even if it is just a very small amount. Not only do small amounts add up to sizeable savings over time, but even small amounts can prove useful in emergency situations.. Short-term borrowing, including on credit cards, usually incurs high interest rates. This is especially true if the cardholder hits the limit or is unable to pay the minimum due each month. Taking on more debt may provide liquidity, but it can turn into an expensive solution in emergencies.
Debt also carries long-term implications. Maxing out credit cards in an emergency or failing to pay cards and bills damages credit scores. That, in turn, makes debt more expensive now and in the future.Are your assets and debt holdings allocated according to your needs? Do you have a cushion against shock? If you do not, what is your capacity to raise funds in a short period of time?
Simple actions, such as these three steps, are a move toward better outcomes. The first benefits they reap may be short term but the bigger picture — long-term financial security — will follow. Annamaria Lusardi is an economist and the Denit Trust Distinguished Scholar and Professor of Economics and Accountancy at
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