Do you know what economic awareness is? It’s being aware of how the economy affects you. What? Never heard that term.

So, what does economic awareness comprised of? First, inflation. You need to know why prices are going up and how those rising prices will affect your budget. Second, interest rates. The Fed is in the process of lowering interest rates and will possibly do another cut this year. Interest rates affect the cost of borrowing (loans and/or credit cards) and bank savings including CDs. Employment trends such as hiring growth or shrinkage, and knowing which businesses are robust or slowing are considered.

During this holiday season, you’ll hear a lot about consumer spending. Consumer spending and savings has a huge impact on the overall economy. Of course, government policies have an effect on your money. Taxes, stimulus checks, Social Security changes and any other regulation can influence your money decisions. Finally, the business cycle of recessions, recoveries and booms should guide your monetary decisions.

So why do you need to understand all of this? Because if you see that costs are going to escalate in the future, you can budget for those rising costs ahead of time. Based on the rise and/or fall of interest rates, you can plan for large purchases, taking out a loan, or planning investments. In other words, you can make more intelligent financial choices. You can get ready for economic slumps like recessions or market downturns ahead of time. And you need to know how government policy changes will affect your money. Lastly, you want to avoid financial missteps that are based on panic or hysteria.

Moral of the story:

Economic awareness is like watching the weather channel for your money. You can’t control the weather, nor can you control the economy. But you can understand both of those things enough to safeguard yourself and make better choices. You know to put on a winter coat if it’s cold out or take an umbrella if it’s going to rain. Likewise, you know if interest rates are going to go up, pay down your debt and don’t take a loan.  Economic awareness is all about making the best choices you can with the information you have.