Financial literacy is the knowledge and confidence to make smart financial decisions. It doesn’t just mean balancing a checkbook, but also taking advantage of opportunities for your future self such as savings accounts and Roth IRAs that offer tax benefits over traditional checking or savings accounts. Financial literacy can help you get rid of debt and build wealth. Financial education is the key to financial literacy.
Why Is It Important?
Financial literacy is about being empowered to make the best possible financial decisions for yourself, your family, and your future. It’s not just about accumulating wealth or earning a high salary—although both are nice benefits of being financially literate. It allows you to take control of money matters without relying on someone else to do it for you. Financial literacy can improve your overall quality of life. It also has the power to change the world for the better.
How to Raise Financial Literacy Levels
You can’t magically impart financial knowledge to someone. Financial literacy isn’t a simple subject. Financial decisions are emotionally laden choices about things people care most about. It’s not enough to tell someone that credit cards are expensive, for example — you have to help them see that the cost is coming out of their future and that the scars from using a credit card will last much longer than the initial thrill or relief of getting something they want. Financial education is about developing skills, not knowledge alone — it’s about helping people to think critically about money choices. Effective financial literacy programs also involve experiential learning. Here are some actionable steps that can give you an opportunity to improve your financial literacy levels:
1. Create a Budget
One of the most basic but effective ways to get more control over your money is by sticking to a monthly budget. This plan will help you identify exactly where your money is going so that you know how much you’ll have for savings, entertainment, and debts. Financial experts recommend using software to help you build a budget that works for you.
2. Find Ways to Increase Your Income
Building a monthly budget will show you exactly how much money is coming in and going out of your accounts, but sometimes expenses can go beyond what’s listed on the report or identified by other people who know your financial situation. So, you might need to find ways to bring in extra income. Even if it’s an hour a week of bartending on the weekends or babysitting for a neighbor once a month, every little bit helps.
3. Say No to Credit Cards
Yeah, that piece of plastic with your name on it is the gateway drug into the world of credit card debt. The problem with them is that once you run up a balance, it can be hard to pay it down quickly because of high-interest rates and minimum payments that don’t reduce the balance. Financial experts recommend waiting until you can pay off your balances in full each month before treating yourself to something expensive with a credit card.
4. Only Spend What You Have
Financial experts agree that impulsive spending on things you don’t really need is a surefire way to get yourself into debt troubles or hamper your ability to save for the future. Financial literacy means learning how to say no and putting away your wallet when you feel the urge to buy something that isn’t on your budget. Financial literacy also teaches how to recognize a situation where purchasing an object, even if it’s available for sale, is not the smartest option.
Financial Literacy at Home and in School
Financial education is something that must be integrated into our homes and schools. Financial education and skills should start as early as possible, with the goal of improving knowledge and building positive attitudes towards money management at all ages. Parents are key role models for their children’s money habits, passing on their own attitudes and skills to their children. Financial literacy is critical in today’s economy, but it needs to start with the adults who are responsible for managing money. School curriculum should teach real-world applications of financial literacy like how credit cards work, budgeting and saving, taxes, investing for retirement, and other savings goals. Financial literacy is essential for everyone, but it’s especially important for students who are learning to make vital financial decisions. It has been proven that when children get an early start on financial education, their money habits improve and they can even avoid problems like bullying or violence.
The Bottom Line
Financial literacy is more than just understanding numbers. It means applying financial knowledge across many life situations, enabling you to make informed decisions about your money. It isn’t something that can be taught in a day or two; it takes time and practice to turn information into actionable skills. Financial education begins with learning the basics like how to read a financial statement, budget your income and expenses, and manage debt. Financial literacy is something that must be integrated into our homes and schools. Financial education and skills should start as early as possible, with the goal of improving knowledge and building positive attitudes towards money management at all ages.
About the Author
True Tamplin, BSc, CEPF®
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.