Knowing the Financial Terminology
There are a lot of scary things going on in the media right now, so we're going to try to break down a few financial terms to make it easier to stay up-to-date on how COVID-19 is impacting our finances.
Some Basic Definitions
Personal finance is a topic with a lot of nuance that we don't tend to talk about. In an effort to simplify some aspects of this field, let's review some definitions.
Financial well-being, according to the Consumer Financial Protection Bureau, is “a state of being wherein a person can fully meet current and ongoing financial obligations, can feel secure in their financial future, and is able to make choices that allow enjoyment of life.” It may also be referred to as financial wellness and is the ultimate goal of financial education.
Financial health is not really a term the Student Money Management Center uses very often, but some people may associate financial health with wealth specifically since it often refers to things like budgeting and saving capabilities, net worth, etc… which is different from financial wellness in that it doesn’t really include the aspect of emotional well-being or feelings that well-being does.
Financial literacy is the knowledge associated with making sound financial decisions; just because someone may be financially literate does not mean they will have good financial well-being.
Financial education is a means to increase financial knowledge and help connect people to information they need to make positive and healthier financial choices.
Financial Security Definitions & COVID-19's Impact
Those were the easy definitions. Let's get to some more complicated terms related to financial well-being and how these terms intersect with the economic challenges we are facing due to COVID-19.
Financial fragility refers to the inability a person has to deal with emergency expenses in a short timeframe, much like what many people across the world are experiencing as a result of COVID-19.
Basic Needs Security
Basic needs security is directly related to financial well-being in that if someone does not have minimum access to things like shelter, food, and transportation, it impacts their overall well-being and safety.
Food insecurity generally refers to a person's ability to access enough nutritious food. We have written about ways to cope with food insecurity on our blog in the past. However, with the current pandemic, our communities' access to food pantries and other resources have likely changed, so look for new opportunities to address this pressing need to pop up as well as watching for publications from the USDA, FDA, and other government agencies.
Housing insecurity refers to a person's access to consistent, affordable housing. It can look different depending on the situation, ranging from homelessness to couch surfing to frequent address changes due to economic instability or cost fluctuations. Research on housing insecurity has shown that it affects many college students across the United States, and it is important to acknowledge the increased risk COVID-19 could have on housing insecurity for everyone.
Income volatility has been defined as "a year-over-year change in annual income of 25 percent or more" according to Pew Research Center. However, with college students and hourly workers, income volatility could occur on as little as a weekly basis, depending on how they're paid.
You may have heard recently about the volatility of global stock markets. Craig Lemoine, Director of Urbana's Financial Planning Program & Clinical Associate Professor, recently posted a video on how COVID-19 is impacting the U.S. stock market.
This is a rapidly evolving situation, as you know, and we are trying to develop and improve our messaging to address financial security and overall well-being.
The Consumer Financial Protection Bureau has already put together resources to help you protect yourself financially from the impact of coronavirus.
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