According to Webster’s Dictionary, financial literacy refers to skills and knowledge that allow individuals to make informed and effective decisions by understanding finances.
Financial literacy starts with a basic understanding of ‘money matters’ to create a sense of economic well-being, self-trust, and financial confidence. Understanding that financial literacy impacts financial confidence includes:
Save- Saving is preparing for the future through actions such as:
- Consistently contributing money into a savings account
- Saving for large purchases
- Increasing your retirement savings each time you get a raise
- Having an emergency fund with six months of living expenses saved
Manage debt- Managing debt includes repaying and avoiding debt through actions such as:
- Seeking out the lowest interest rates when borrowing
- Paying off credit card balances each month
- Making payments on time
- Avoiding bankruptcy by working with a credit counselor when debt becomes overwhelming
Invest- Investing for the future for a financially secure retirement through actions such as:
- Participating in your employer-sponsored retirement plan
- Financial planning
- Working with a financial professional
- Having adequate insurance to protect your ‘nest egg.’
- Investing in after-tax strategies such as annuities and other investments
Financial literacy also includes having a basic understanding of how to pay bills online, manage bank accounts, manage debt, fill out income tax withholding forms at work, and other money-related actions. Without a financial literacy foundation, one may struggle financially throughout their life.
How financial literacy impacts financial confidence isn’t always taught in schools
That leaves financial literacy up to parents to educate their children and individuals to learn independently or to find education through a trusted source. Who can help you if you have questions about financial concepts?
- A capable educator or financial literacy teacher
- A Financial Professional
- A Certified Public Accountant (CPA)
Talk to a professional to understand more on how financial literacy impacts financial confidence
Financial illiteracy affects all ages and all socioeconomic levels. It’s up to all of us to improve financial literacy and help others move toward financial independence and freedom.
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