What is Financial Literacy?
01/24/2024
What is Financial Literacy?
Financial literacy is a term that gets thrown around a lot, but not everyone is very clear on what it means or what it entails. At its purest form, financial literacy is money education. Through this education, consumers can feel more in control of their personal finances and making financial decisions.
What Is Financial Literacy?
A more formal definition of financial literacy is education meant to increase understanding of monetary concepts like how to earn, manage, and invest money. Financial literacy is key to helping individuals build successful financial futures that include a sense of financial well-being and trust.
Financial literacy can be deeply enriching for the individual as it empowers them to make more informed financial decisions that ultimately lead to greater monetary stability, less stress, and a higher quality of life. Through financial literacy, individuals have more control over their personal finances and can make whatever money they have work for them.
What does Financial Literacy Entail?
Financial literacy can look like many things, and the necessary education can start at any stage of life! The biggest thing to remember is that your level of financial literacy has nothing to do with the amount in your bank account. The important part is to start by building a basic knowledge of money matters. According to Forbes.com, these include budgeting and expense management, saving and investing, debt management, retirement planning, insurance and risk management, and understanding financial products and concepts.
For example, saving and investing knowledge will teach the individual how to allocate money toward multiple goals at once. Understanding insurance and risk management will better enable the individual to feel in control when things like job loss and other unexpected financial strains happen. Furthermore, understanding financial products and concepts will allow the individual to make informed decisions on things like loans, credit cards, and investments.
How do I Increase My Financial Literacy?
Demonstrating financial literacy can look like many things and you may already have some without any formal training. Have you ever increased your retirement savings with a pay raise, regularly checked your credit score, or set up an emergency fund? Those things all demonstrate financial literacy!
To increase financial literacy, you do not have to attend formal education unless you wish to. For more general education on topics that increase financial literacy, there are many resources available to the public. You can contact your employer to see if they provide any financial counseling or seek resources from well-established agencies like non-profits. The Consumer Financial Protection Bureau and National Foundation for Credit Counselling are just two of the many great resources out there.
While formal education on financial literacy can be helpful for many, self-led education and self-practice can be just as useful. Simple things like reading a blog post on how to effectively budget and then applying it to your own finances is a simple way to increase your financial literacy. You could also do things like learn what your credit score means and regularly check your score or track your spending habits through your credit card issuer. Financial literacy education and practice does not need to be stressful or time consuming.
Simply put, financial literacy is a way to help individuals and communities succeed through monetary education. At The Savings Bank, we strive to provide our customers and communities with helpful tools to improve their financial literacy. Check out our other blog posts and Facebook or Instagram pages for more topics linked to financial literacy.
https://www.experian.com/blogs/ask-experian/what-is-financial-literacy-and-why-is-it-important/
https://fsapartners.ed.gov/knowledge-center/library/functional-area/Financial%20Literacy
https://www.aba.com/banking-topics/consumer-banking/financial-literacy