Athletes get into sports clubs at a very young age, and most of them do not even complete their formal education. They will not know about our financial services and its products. Financial literacy is a big problem and professional athletes face a financial crisis after their retirement. When they are at the peak of their career they don’t think about their future, they spend on expensive things which are not needed.
Almost 78% of athletes after retirement have faced financial issues. This is why financial literacy is important for players. Well, in this article we have mentioned why financial literacy is important among players and what strategies can be adopted by the players to save money for their future.
What is Financial Literacy?
Financial literacy means using the knowledge of the financial system to its maximum potential. A person who has basic knowledge about financial products such as credit card, debit card, and savings accounts are said to be financially literate. Now in this era where the financial world is changing rapidly, people should adapt to all the new changes that are taking place. There was a time when all transaction was done by plain cash. Nowadays, there is credit card and debit cards. We can use a credit card to purchase a product without giving them cash.
According to reports that were published by the Bank of San Francisco, the reports revealed that only 20 percent of the transactions were made by cash and around 28 percent were by credit cards. Financial education remains with you for the rest of your life, it lays the foundation for you on how to save money efficiently. You need to update yourself whenever there is an innovation in the financial system. It is better to start at an early age so that at the very beginning of your career you can save money and start investing.
Lack of financial education can be very harmful to an individual’s financial life; if a person does not manage his money properly, he can face grave consequences such as bankruptcy, poor credit score, selling of assets, and many other adverse ramifications. Reports reveal that 66% of Americans do not have a financial education. It is better to know about the consequences of failure of loan repayment, before taking a loan.
You need to have a clear idea about how much money you will require and whether can you repay it before applying for a loan. For low-income individuals, loans should not be taken to purchase depreciating products, they should be used for sustainable development. Loans should be used to finance education, your business, or something that generates some kind of revenue.
Well, there are many sources nowadays to gain financial education. With technological advancements, many financial institutions integrate Key business knowledge into their products. So, when a user uses their product they can access the content. Many microfinance institutions are also following this method. Financial education plays a crucial role in expanding financial inclusion.
If people are aware of the advantages of a financial product then only they will become a part of a financial system. Financial education also plays a huge role in making an individual financially capable to know more click on what is financial capability. Even government also works for educating adults about our financial system. One of the organizations that work toward financial literacy is Financial Literacy and Education Commission. This institution is U.S. government-sponsored, and the classes are free for individuals.
Usually, Financial literacy includes skills such as Household Budgeting, loan/debt management, and comparing various offers provided by credit or investment options. To build these skills you should have a basic knowledge of compound interest rates, depreciation, and investments.
With the increase in college fees, Students usually take up education loans. Reports reveal that 43.5 million American students have taken student loans to finance their education. This just proves how important it is for young individuals to have financial education, as they need to compare various loan and insurance options. Any bad decision can lead to financial instability.
Financial education is important for a person, as it will help someone make short-term and long-term financial plans. A person who is financially aware can set aside a certain amount of money from their income for any kind of emergency; he can also start investing money so that his future gets sorted.
However, the financial strategy depends on many factors–-there is no general technique that can be followed by others. It depends on your age, the type of financial background you have, and other economic factors. One thing that can be sure of is that with financial education you will not be stuck in a bad situation, you will be aware of the financial institutions and their products which can be used.
Nowadays, with the eruption of fintech industries, payments are done by mobile phones. It is important to know about them as it offers a lot of benefit over traditional banks. You won’t need to go to any physical institutions for accessing your bank account, but it can be done on your mobile phone at your convenient time.
You can send and receive money on your mobile phone as well. You need to understand mobile money services as it is the future of the financial system. Women have largely benefited from mobile services because it is helping women control their financial lives through digital financial services. Investment is another sector that has gone through innovations, there are many investment apps that you can use to track the daily share market.
You start investing a small amount of money and then start earning money. You will find many financial influencers as well, that can teach you how to invest money and what are its limitations. Then there are various schemes like buy now/pay later or P2P lending that provide easy and affordable ways to collect funds. To make use of these various financial products and gain profit you need to have basic knowledge of our financial system.
Why is Financial Literacy Important?
Just by earning money all your problems will not get solved. You need to categorically save your money according to your goals. Then only you will be able to achieve them. Financial education is needed in every step of our life, from preparing out day to day budget to investing money in the acquisition of assets for the future, financial education is required. One must be cautious when selecting loans, one should compare interest rates and then select loans that will be profitable.
For young graduates who are starting their careers, it might feel the retirement plan is not needed now. However, if you start investing early, the more early you can retire and live a stable financial life. Reports published by The U.S. Federal Reserve System reveal that there are a lot of families that do not have a retirement plan.
According to reports around one-fourth of the working population does not have plans to make a retirement plan. Even many families that had made retirement plans share that they were not confident enough on whether they could achieve their retirement plan.
This just shows how important it is to plan for your retirement at the early stages of your life. If we look at the case of Pakistan, where they are facing an economic crisis. A large number of people do not have financial education for more look at our report about Results from research in Pakistan: what do clients care about?
Research has found that most Americans do not know about basic financial concepts. Most of them still use payday loans that charge high-interest rates. Some of them still use the pawn shop to borrow money. They do not save funds for emergencies, they take up huge mortgage loans for their homes. These problems may seem like a single person’s financial issue, however, that’s not the case. If we look at the economic depression that had taken place in 2008, the sole reason was high mortgage loans. Due to a lack of financial education, this disaster had taken place. So, financial education determines the health of the overall economy of a country.
Advantages of Financial Literacy
If a person is financially literate, that person becomes confident while making a financial decision. That person has less stress regarding his life. However, these are some of the major advantages of Financial Literacy:
- With financial education, you can avoid getting scammed. If you are aware of the financial system you can identify schemes that are frauds. You can analyze between loan options and choose which one suit you the best.
- Financial education prepares you to face any kind of economic crisis. You get lessons on how you should save money from your income as savings. There are also lessons on how you can earn money from your savings, this can be done by investing in stocks or mutual funds. You will also know about the benefits of microinsurance to know more check out our report on microinsurance can the Cinderella of financial inclusion join the global ball.
- When you start doing a job, you will have many goals set that you would like to achieve. Goals may include, buying a house, marrying, or education. To accomplish these, you need to categorically save money for each goal. It is better to start early than later. This lesson is also provided in financial education they teach you how to prepare a budget and stick your financial behavior according to it.
- When you are financially aware of the financial system, it becomes easy for you to take financial decisions. As you will be prepared for your future you will take less stress regarding it. You can retire early than your colleagues if you start saving money from a young age. By always having a clear head about every decision you make, you become confident about talking about money. However, you should not be overconfident as you will start investing in products that you do not know about. So be confident in the skills and knowledge that you have acquired.
Is Finacial Literacy Important for Athletes?
The life of an athlete is different from that of a regular guy that chooses more of a conventional career path. From a very young age, they get into sports clubs, where they only train and exercise. They are kept apart from the financial system completely. When they start earning money at a young age it is quite obvious they won’t be making sound financial decisions. They spend money on purchasing exotic cars, pets, and houses that they don’t need. They don’t save money or invest their money somewhere they can have sustainable growth.
Various reports suggest that athletes are the most vulnerable in terms of a financial crisis. They earn money in a very short amount of time, usually on average a professional player’s career span from 10 to 15 years. During that time they earn a lot of money, which is 50 to 100 times more than what an average person earns. This makes them even more vulnerable to a financial crisis.
Professional athlete earns the most when they are at the age between 25 to 30, that’s when they are at the peak of their career. After the age of 35, their earning reduces a lot, and at this point in their life, most athletes leave their sports club. Their earnings then come from advertisements or some investments that they have made. If we compare it with people who opt a normal office work, people falling in the age bracket of 38 to 50 earn the most money.
If someone earns a lot of money at a young age it is quite normal for them to misuse them. Now, a sports professional’s career depends on how they perform throughout their career, and based on that their salary is decided by the respective clubs. As field performance is not always consistent, their salary is also affected. So, the salary that athletes get is not consistent. If a player gets an injury then that whole season, he/she does not get to play this impacts their overall performance due to which they can face club transfer, which pays them less.
Well, on the channel ESPN, there was a documentary aired named Boke which followed the stories of many professional athletes that had faced financial instability after they had retired from their professional careers. According to that documentary, 78% of the NFL basketball players who had retired were facing financial crisis or had gone bankrupt. If we talk about the pliers of NBA players, 60% of the players were facing a financial crisis.
The problem starts at the beginning of their career itself, Athletes are surrounded by players that do not have financial education and spend a lavish lifestyle. Young athletes who earn $320,000 annually do not save their money they also get influenced by their senior players and start spending blindly. In comparison office workers, are surrounded by people who save money and use financial products, whereas sports players are not surrounded by someone like that.
Then there are some other kinds of practices that some professional athletes do, players that come from remote places, and whose family is poor. Those players help their families and extend families with the money they earn from sports. This becomes hard for a player to support his family when he has stopped earning, due to some injuries or lack of performance. The income pattern of players is inconsistent as we have discussed. A similar problem was faced by a player, Bernie Kosar who was a quarterback for the Cleveland Browns. When he declared bankruptcy in 2006, he had said what would happen to 25 to 50 families that he was supporting.
Institutions Offering Financial Education
With examples like these, we can see how important it is for players to fave financial literacy, there are many credit unions present in the USA that offer financial education. Then there are government-funded programs that are conducted for spreading financial knowledge. However, the impact has not been significant, according to reports only 48% of Americans have received financial education.
Well, with programs such as financial empowerment centers, it seems that financial education can be best delivered and made understandable if given in one-to-one sessions. This program was conducted in New York, where it has made a huge success. The model is unbiased, one-to-one sessions are conducted with any individual. The session is based on that person’s requirements. The center checks for the individual’s expense report and looks for unpaid debts. Based on the report financial advice is prepared.
None of the electric programs that deliver financial advice can be comfortable like in-person conversations. The FEC program keeps a check on its user after they have received a session. Based on their report, around 19,000 people have been in their program, and with time gradually they are influencing their community towards managing money. With more than 30 centers and multiple outlets, the impact is just growing.
Top Financial Strategies for Athletes?
As we have understood why financial literacy is important, for professional athletes it is even more required. They earn millions of dollars within just a year or a decade. It is important to manage this money as players do not have a career for a long time. Their career span for 10 to 15 years at the max. Most athletes mix up in the usual financial problems just like the others. Usually, they buy exotic pets, luxurious cars, and extravagant houses which they don’t require. Some of the athletes help around 30 to 50 families that they know. However, due to a lack of financial education, most professional athletes end up in tax default cases, in divorces that charge huge alimony for child support.
Well, we have mentioned some of the methods by which professional players can manage their money properly and avoid financial problems.
Tax Saving Tips for Profesional Athletes
Saving tax requires knowledge of how the tax system works, by saving on tax money you get to keep a large amount of money that you earn in a legit way.
- Tax-free States as your domicile: You have to look for states that do not have income tax reforms. If your club belongs to another state then compare the traveling costs and then select a place where you will reside, states like Florida, Tennessee, or Texas do not have income taxes.
- Comparing Taxes of home state and other states: When a player plays games in different states, they have to pay taxes to each of the states that they are visiting. However, they receive a tax credit from their home state. A player should check if the tax credit rate is higher in their respective home state as compared to other states.
- The signing of bonus checks: A player should understand that If he signs a bonus check in some state that has high-income tax rates then he will lose a lot of money. He should select states that have low-income tax rates for signing his bonus checks.
- Tax Benefits on Endorsements Income: In some states, there are some tax benefits present if you are associated with a business. So, when a player does an endorsement of a product they will receive a tax benefit on that income, resulting in saving money. It is important to hire a qualified financial advisor who can guide a player to save money on taxes.
Every player should plan their retirement plan right after starting their career. It should be done soon as a player’s career does not work for a club for a long time. They should invest money in stocks or buy assets. Most of the players after retirement face financial crises as they do not plan their retirement properly. Financial literacy plays a crucial role in planning a great retirement plan.
For a player that has just started earning it may look like he is earning a lot of money. However, the income does not last for a lot of days. A player earns for 5 to 10 years, depending on the sport. So long-term planning is important for an athlete as their career spans a short time. This can be achieved by creating income goals. By having set goals, which need to be accomplished players can focus on those goals and save money according to them. This avoids players lose track of their spending, which in return reduces bad financial decisions. A player needs to create goals and then monitor them to see their progress, this encourages the player to stick to the financial plan that he has created.
Several financial advisors are present that can help athletes prepare a plan for themselves. There is a platform that allows preparing a financial plan for them, the platform is called Worth Winning. It generally targets players that have started their careers. This platform was founded by Lauryn Williams, who is an Olympic champion.
Managing Personal Relationships
This a big challenge for growing athletes, they kind of feel an obligation toward people that have helped the player to become big. There needs to be a limit, to which extent help should be provided. If by providing financial help you are not able to keep your savings then there is no need to provide help. This is been a problem for most of the athletes Who support around 30 to 50 families. Then after retirement, they are not saved any money.
There should be proper boundaries set when dealing with families or friends, you should hire some third-party association that will put aside a certain amount of money from your income, that you have agreed upon for paying your family or friends.
Hiring the Right Financial Advisor
A professional player should hire a professional financial advisor that has a reputation for efficiently handling the finance of other players as well. Nowadays, there are a lot of financial advisors who are frauds, who have charges held against them for scamming and cheating. Players are mostly busy in the field, playing, and training. They do not have the financial knowledge required to handle taxes, estate planning, Investments, etc. So, it is recommended to hire a professional who will look after all these things.
Players should avoid financial advisors who admire them. A fan cannot give diplomatic decisions there will be a sense of biasedness in their decision. They should always go for well-established advisors who have handled big players and are very professional when it comes to their job. However, players should also look at what the advisors are suggesting, after all, it is his money, and he should be engaged in all the decisions. It is not at all cool for players to say, “I have people looking after my finances” It is your responsibility also to look after it.
Frequently Asked Questions
Q1. Why is financial literacy important for athletes?
Financial literacy is important for athletes because they earn a huge amount of money in a short time. Due to this most of the players do not save money or prepare a retirement plan, resulting in a financial crisis after they have stopped playing. This is why financial literacy is needed for athletes to avoid bad financial decisions and have a proper retirement life.
Q2. Do professional athletes have financial advisors?
Yes, most of the professional players who are hugely successful have financial advisors or are a member of a firm that provides financial assistance. Players need to have a financial advisor as they don’t have the knowledge or the time to look into financial matters themselves. Young players should hire advisors to not lose track of their income at the very beginning of their careers.
Q3. How do professional athletes spend their money?
Professional athletes spend their money on having the most luxurious lifestyle, they buy expensive cars, exotic pets, and multiple houses. Most of the young players spend a lot of their money on vacations by staying in 5-star resorts, buying yachts, etc. However, some players give money to charities and provide financial assistance to villages that they have lived in.
Financial literacy means having a basic knowledge of the financial system and all the financial products, such as credit cards, debit cards, savings accounts, loans, and insurance. Having financial knowledge helps you to take financial decisions confidently and avoids you from getting scammed.
Well, financial literacy is important for athletes, as athletes earn a lot of money in a short time. So, it needs to be managed so that after the player retires he does not face any kind of financial crisis. Professional players usually get into sports club at a very young age, and most of them does not complete their education also. Which is why they do not have basic knowledge about how to manage their finances.
It is suggested to players hire a financial advisor who can guide them in making a wise financial decision. The financial advisor can chalk out the perfect retirement plan for you. You need to choose a well-established financial advisor that has already helped other players as well. In the end, it is always your money that needs to manage, so you need to educate yourself about the financial system and learn about financial products and their benefits.
- Jonas Taylor is a financial expert and experienced writer with a focus on finance news, accounting software, and related topics. He has a talent for explaining complex financial concepts in an accessible way and has published high-quality content in various publications. He is dedicated to delivering valuable information to readers, staying up-to-date with financial news and trends, and sharing his expertise with others.