Financial Literacy: What is it?

Financial literacy is when someone has a prevailing ability to conduct finances effectively. Having a good understanding of financial literacy implies you can handle finances and understand the value of money.

Having a good knowledge of financial basics will allow you to make smarter decisions concerning your money. You can be self-sufficient in economic decisions.

A very basic understanding of financial literacy is:

I know which finances matter, such as investments, debt management, and paying bills.

It’s a good start knowing and understanding a few financial basics. And, if you want to achieve financial stability, you need to apply that terminology effectively in the right way.

Do You Know What It Means To Be Financially Literate?

To be financially literate, you need to have an understanding of these core areas:

  • Saving money, using the power of compounding, and paying bills at the same time
  • The basics of loans (personal, debt, mortgages, etc.)
  • The relationship between credit cards and credit scores
  • What investing is, how the stock market works, etc.

Financial literacy won’t just appear out of nowhere.

There is a shortage of financial education in the education system. Most schools do not teach personal finance to students. It is likely that parents and family are misinformed or lack a deeper understanding and the time to provide education that children can benefit from.

What is a person to do?

Unless you take some economics or financial courses as part of your education path, you are responsible for becoming financially literate on your own.

We can always point the finger at the education system, our parents, and our environment, as that’s the easy route.

On the other hand, we are still ultimately responsible for our own financial literacy despite all of the factors above. You’re the only one who can change your financial future and achieve the knowledge you need.

Although someone in your life may give you some money and investing insights, it is up to you what you do with them.

Thankfully, some school districts are beginning to teach money lessons and include financial literacy classes in their curriculum. However, it has a long way to go until it is widely adopted.

Is there anything you can do as an individual? In the next section, I’ll discuss some ways you can achieve financial literacy on your own.

How to become financially literate on your own

Because you may not have taken any classes or gained much insight, it’s up to you to become financially literate and develop good financial habits.

You can learn many aspects of finance reasonably quickly in the digital age, thanks to a wealth of information.

Everyone learns at a different rate, so it may take you some time, depending on your schedule. I recommend that you learn at your own pace.

To help you become financially literate, here are some tips.

Get the books out and get started. 

Your quest to become financially literate will require you to read personal finance books. Particularly for somebody without finance or investing experience, this is crucial.

Read about money management, investing, budgeting, etc., at least a few hours every week.

Become familiar with online magazines and publishers.

I consider books to be the most important. Still, financial magazines and online publications can be equally important to your financial education.

Think of publications like Kiplinger, Financial Times, Fortune, and tons of personal websites (like mine:

Take advantage of financial management tools.

Managing your money and finances doesn’t have to be complicated or boring. Thanks to technology and the internet, you have access to a wide range of money tools to help you become more proficient.

Furthermore, these financial resources can teach you a great deal about how to plan and visualize your life. There are great learning centers included in many of these tools.

Tune in to the Money Podcasts

Reading can be challenging when you don’t have enough time. Podcasts are perfect if you have a busy work and family schedule.

Podcasts are very popular, and there are many great ones you can listen to on your way to or from work, doing chores, or even at work (if it doesn’t disrupt your productivity).

The number of good podcasts is too large to list, and they range in length from 10 minutes to almost an hour of great content. Obtain free financial advice by listening to podcasts.

Take a course in financial literacy.

In addition to books and online publications, you can also enroll in a financial literacy course or class at an online school, college, adult education center, and so on.

Those who feel they need the structure to learn can go one step further by taking a course. Most online courses have fees attached, and some free ones can be beneficial.

Put your math skills to the test.

I’ll be honest with you. Math isn’t my passion. Even so, you’ll need to brush up on your basic math skills to achieve financial literacy.

Become familiar with some basic math formulas to help organize your money, savings percentages, and budgeting.

If you need help doing the math, spreadsheets or software may be able to assist. It is okay if you do, as long as you understand how the math works, why it is that number, and if necessary, you can calculate it yourself.

Get Out of Your Consumer Mentality

We have a consumer mentality, which is a huge challenge for many people today. In the beginning, it’s inevitable.

We are bombarded with advertising everywhere we go. The media promote luxurious lifestyles. As a result of social media, we worry too much about what others have and are envious of others’ possessions.

You’ll learn to stop thinking like a consumer and develop an investor mindset throughout your financial literacy journey.

How can you invest your money in items you are likely to lose interest in quickly rather than relying on instant gratification? That’s the key to breaking a bad consumer habit.

Learning Financial Literacy Offers Many Benefits

By now, you may have realized how critical financial literacy is. Also, you might be calculating the benefits it will have on your current and future finances.

If it is still necessary to convince you further, here are some more benefits of becoming financially literate:

You gain control

Your finances are now under your control instead of money controlling you. When you feel empowered, and in control of your finances, you feel more confident and decisive.

Moreover, you develop a new perspective on finances. Your attitude toward money changes for the better.

Avoiding debt and reducing it

Today, debt is one of the biggest hurdles facing many younger adults.

You are better prepared to protect yourself from debt disasters when you have a financial education. A debt management plan can save you thousands of dollars and help you tackle any existing debts.

Prioritize financial goals

Knowing more about finances will make you more inclined to set goals for yourself. In addition to that, you may find yourself more enthusiastic about achieving your goals.

Identifying fraud

Financial literacy can impact your understanding of identity theft and scams in the finance arena, even if you don’t talk much about it.

In terms of investing, banking, and other money-making schemes, you can start to see red flags. You will be able to make wiser financial decisions as a result of it.

You should consult someone if you need help, but now you can tell if someone is offering you bad advice or services that may rip you off. By asking the right questions, you can assess your options.

Finance literacy: The who, what and why?

It is about your ability to manage and make money and the basics of creating a budget and investing for the future. Gaining self-sufficiency in basic financial matters helps you maintain a stable financial life.

What are the main components of financial literacy?

Financial literacy includes the following five components:

  • Creating a budget
  • Prioritizing Savings
  • How investments work
  • Debt Management 
  • Identity Theft and Financial Safety

Who needs financial literacy?

Children, teenagers, and adults should all be familiar with financial matters. Young children can be taught many financial literacy components. As they get older, they become more advanced.

You don’t need much experience to learn these concepts. You can master finances over time if they are broken down into small steps.

Why is financial literacy important?

The importance of financial literacy lies in its ability to prepare you with the skills you need to manage money and avoid financial difficulties. You leave yourself vulnerable to poor financial habits if you do not understand how finances work.  It can cause you to be the generation that brings you back to “Shirtsleeves to shirtsleevs.”

You are responsible for mastering your finances, taking control of your debt, and investing as time passes. Money management is not straightforward at first, but you will find your finances (and life) less stressful once you build consistent habits.

“It’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.” – Robert Kiyosaki

1 Comment

  1. Jeff Halpern on July 16, 2021 at 10:35 pm

    Great article, Danielle, on a very important subject!

    I would add that understanding basic tax principles is also part of financial literacy — like the difference between ordinary income and how it’s taxed versus capital gains, tax free savings accounts, retirement savings plans, the enhanced tax benefits of self employment, etc.

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