Financial literacy simply refers to the ability to comprehend and use different financial skills effectively, such as investing, budgeting, saving, and personal financial management. On the other hand, the inability to understand financial concepts is called financial illiteracy.
- Financial literacy is generally the financial concepts and skills we and must learn.
- Financially literate individuals have greater chances to be financially independent as young as they can.
- When we have a strong foundation on our financial literacy, we can effectively work for our life goals, education, savings, early retirement, responsible credit and debit, and so much more.
Financial Literacy Explained
During previous years, services and products generated by finances have been impacting the world and different societies. During the early American ages, people are more on cash as the primary tool to exchange goods and services. However, as of now, we have credit cards, mortgages, student loans, health insurance, self-directed investment accounts, and so many more that were brought about by our technological advancements. These then gave us more ways to live comfortably and rationally, depending on our strategies in managing our finances and life.
Now, although a lot of us have been engaged in financial literacy, there are still some skills that mostly fell on the umbrella branches of financial literacy. These branches are the sub of what financial literacy teaches us, such as household budgeting, managing pay-off debts, evaluating investment products and credit, and more. These are simply the micro-branches of financial literacy that it tries to improve by the application of proven effective and efficient solutions. Also, there are times wherein even these kinds of skills still require enough working knowledge to bring out the best results every time we use them. Here included are the time value of money and compound interest.
Moreover, given that financial literacy brings different impactful things to the world and its societies, being illiterate about it must be ended. Unfortunately, there is a total of 66% of people among the Americans who are unaware of this field. This then appears to be dismay as it is regarded as one of the root causes why a lot of Americans are usually ending up having too many debts to pay, as well as live a poor and miserable life. Another thing, too much lacking financial literacy leads to different downfalls. The most common here is having too many debts brought about by poor financial decisions.
Example of Financial Literacy
Claire is a secondary school teacher wherein she is in charge of teaching her students about financial literacy. In her curriculum, Claire is eager to teach her students basic financial topics such as debt management, retirement saving, insurance, tax planning, investing, personal budgeting, and general financial education. Claire’s reason she does this kind of lesson is that not all schools and educators teach their students financial literacy, which she believed an essential thing that must be taught to students as early as possible. In this way, there will be more financially literate and rational individuals being produced by schools. Another thing, financial literacy, after all, is an essential topic that anyone needs to know. Here, we are taught how to manage and use our funds properly. In this way, we can always make rational financial decisions that will bring us lifetime-worth benefits.
Frequently Asked Questions:
- What are the steps to be financially literate?
Well, it’s simple. To be financially literate only needs two things: a proper financial plan and determination. First, we need to have a proper and profound financial plan that will serve as our guide throughout our journey. This will be our backbone to produce only financially rational decisions to avoid regrets in the end. Next is determination, which we’ll need to continue pursuing our dream of financial freedom. Once we have both of these, then we can start our journey to financial independence and literacy.
- What are the most used Personal Budget Rules?
When we say personal budget rules, it simply refers to our ways of managing our money. As it said that it is personal, then it depends on us. However, the most popular and used personal budget rule is to stay disciplined. If we have the discipline when we spend our money, then we can realize the better way to spend it and not just on nonsense materials.
So, if you are not already, become financially literate to manage your finances better in the future.