By: Shelbi Nederhoff

April is Financial Literacy Month in the United States, so it’s a good time to learn more about financial topics, brush up on your own financial know-how or teach younger people in your life about personal finances. For decades, finances weren’t something that were taught in schools. It’s just now becoming a subject that’s required teaching in some schools in our country, yet it’s a crucial thing for all of us to know more about. Some things about finances fluctuate - like interest rates, the market and more - so it’s important to understand the basics to be able to successfully navigate changes.

Understand the Language

Being financially literate requires that you understand the language of money. What does interest mean? What about late fees? Or cash flow? It’s important to start with basic money concepts and make sure you really understand them.

Whether you’re refreshing your own financial knowledge or teaching your kids about finances, it’s good to start with definitions. A few helpful concepts to understand are:

• Assets – something owned. Cash is an asset many can associate with, but other examples include inventory such as crops, crop inputs, or livestock. Assets can also include equipment or real estate owned or retirement accounts.
• Liabilities - something that a person or company owes. These can be short-term obligations such as money owed to suppliers, or they can be long-term such as debt related to a mortgage.
• Interest – this is reported on an income statement as both income and an expense. Higher interest-bearing accounts with frequent compounding might provide you with some extra income; however, it is important to also consider the reciprocal by reviewing how much interest expense you are paying and how frequently is that interest being compounded (daily, monthly….).  
• Cash Flow - the movement of money in and out of the business. For many farmers, their business is very cyclical, so knowing exactly when cash flow will be challenged provides a grower time to make informed decisions such as debt management or when to pull the trigger when buying new equipment.
• Credit Score – imagine this being like a report card for your financial habits. If you miss payments or carry high credit balances, your score can be lower, which in turn can increase your cost to borrow, so higher interest expense.

This is just a short list of terms to understand, but they are interconnected. Understanding the relationship can help you establish a financial gameplan.

Know Your Numbers

We always encourage growers to be very clear on their numbers - how much money comes in and goes out of their operation and what their breakeven point is. Whether you’re talking about operating a business or your own personal finances, it’s important to know what your numbers are.

For a business, this means you need to know exactly how much profit you make and exactly how many expenses you have. It also means you understand your interest rates and the amount of debt you have, and you have a clear picture of your financial situation.

For personal finances, knowing your numbers means you have a budget and you know how much money you bring in monthly versus how much goes out each month. A budget can help you plan where your money goes and it can help you make progress on financial goals you may have.

It’s good to know where you’re starting from and where you’d like to end up with your money, even if the picture isn’t as rosy as you’d like it to be. If you don’t know what your numbers are, it’s hard to improve them.

Read the Fine Print

Sometimes, when things seem too good to be true, they are. This is helpful to remember in many financial situations - from getting a credit card to securing a loan and even opening checking or savings accounts.

That loan or credit card statement offer comes with an entire set of terms that lay out the specifics of the agreement. The terms are important to understand because they can make what looks like a good deal into something very different. If you take out a loan, the loan provider decides how much interest to charge and how that interest will accrue. As an example, let’s say you see a headline like “0% interest”, but no other immediate details. It could be that the interest rate is 0% for a few months then shoots up to 20%. If that’s the case, a better deal would have been something with a lower interest rate throughout but without that steep hike.

The finance terms also include things like the length of time you’ll make payments and the fees that you’ll incur if your payments are late. Those terms include details about how interest accrues and if there are any penalties for paying the loan off early.

All of these details impact how good of a deal an offer actually is, so be sure to always read the fine print and make sure you understand what it means for how much you’ll wind up paying. I personally recommend that growers log onto the Nutrien Ag Solutions HUB to find those important details for the financing we offer.

Mentor The Next Generation About Finances

If you were lucky enough to grow up on a farm, you know farms provide lots of hands-on training, including in finances. You start to learn how hard work can equal earnings and (hopefully) you had the opportunity to see the ins and outs of financial decision making.

Farm experience or not, there are lots of ways to teach younger generations about finances. You can make finances into a game, you can give your kids a little financial responsibility of their own, or you can simply talk about money as a family.

I have a colleague who buys each of her kids a heifer, pays for the feed and lets the kids decide what to do with it - do they sell their heifer or do they start their own herd and keep growing their own business? Here are a few ideas to get you started with teaching your kids about finances.

Whether the month is officially Financial Literacy Month or not, it’s important for all of us to understand money concepts, to be open to learning more about finances and to teach the next generation about the importance of money and how to effectively manage it.