If you have read any finance articles or news that relates to money, you probably have come across being financially literate or “financial literacy.”
These terms apply to how well you understand your finances and how educated you are in everyday financial decisions.
Unfortunately, the financial education results in America are really not that great.
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“Only 28% of Americans are considered “financially healthy,” according to a CFSI survey of more than 5,000 Americans.
While not a large sample size, there are tons of other statistics about low savings, high debt, etc. out there. Yet, you don’t have to be in those categories.
Below, we’ll explore everything about financial literacy and how you can become financially literate on your own.
What is Basic Financial Literacy?
Being financially literate or “having financial literacy” is not difficult to define. These terms simply mean you have a basic understanding of finances and that you have a grasp on the value of money.
Understanding financial basics thus allows you and others to make smarter money choices and are able to be self-sufficient in financial decisions.
The best way to define financial literacy is:
You are able to understand financial issues everybody deals with like saving money, paying bills, debt management, investing, etc.
Knowing and memorizing some finance terms is great, but it’s applying that terminology effectively that create financial stability in your life.
Financial Literacy Statistics
Now that we have a complete definition of financial literacy, it makes sense to put some stats behind it. There are tons of personal finance stats, but I’m going to keep it pretty simple here.
Below are a few that I found interesting as it relates to financial literacy.
- Two-thirds of American adults can’t pass a basic financial literacy test. (Fortune)
- 44% of Americans don’t have enough cash to cover a $400 emergency. (Forbes)
- The majority of US adults (61%) have had credit card debt in the past 12 months and nearly two in five (38%) carry such debt from month-to-month. (NFCC)
- Nearly four out of every five U.S. workers live paycheck to paycheck. (CareerBuilder)
- Nearly three in 10 adults (29%) are now saving more compared to one year ago, particularly Millennials (18-34) and young Gen Xers (35-44). (NFCC)
- 56% of American adults have less than $10,000 saved for retirement when you combine the 33% who have nothing saved with the 23% who have a small amount saved. (Time)
What Does It Mean To Be Financially Literate?
Being financially literate means you have an understanding in few core areas:
- Budgeting to manage your money
- Setting financial goals
- Paying bills and saving money
- Basics of loans (personal, debt, mortgages, etc)
- Credit cards and credit scores
- How investing works, 401k’s, the stock market, etc.
Financial literacy is not something you will magically know either.
The majority of schools are not teaching personal finances to students and there is a major lack of financial education. Parents and family may be misinformed or lack a deeper knowledge that children cannot learn from.
What is one to do?
Unless you take some economics courses within your education path, becoming financially literate is on YOU.
Yes, you can blame the education system, your parents, your environment, etc.
While they can all have some affect, this is still something you ultimately control. You alone have the ability to change your lack of knowledge and financial future.
Read the above over again because I think it is important.
Harsh truth? Maybe. But no one is truly going to hold your hand and show you the way.
Even if someone in your life does arm you with some money and investing insights, it’s on you as to what you do with that information.
The good thing is, many school districts are starting to teach money lessons and add classes to the curriculum to help improve financial literacy early. But, it has a long way to go until it is universally adopted.
So what can you personally do? In the next section, I’ll cover some ways you can achieve financial literacy on your own.
How To Achieve Financial literacy On Your Own
Again, since you might not have had any classes or had much insight, it’s up to you to become financially literate and develop good financial habits.
Luckily, with the digital age and abundant amount of information, you can learn finances relatively fast.
Everyone is at a different learning curve and pending your life’s schedule, it may take you some time. So I recommend you go at your own learning pace.
That being said, here are some simple ways to help you become financially literate.
1. Hit the Books
In order to get started, personal finance books will become key in your quest to be financially literate. It was crucial for my education, especially coming from no background in finance or investing.
Dedicate a minimum of 1-2 hours each week to reading books about managing your money, investing, how to budget, etc.
I created a list here of some of my favorites that were important to my financial education.
2. Read Magazines and Online Publishers
I find books to be the most important, but financial magazines and online publications can be equally important to your financial education.
Think publications like Kiplinger, Financial Times, Fortune, and there are tons of personal finance bloggers (like me).
Also, websites like Bankrate, Student Loan Hero, BiggerPockets, GoBankingRates, and Investopedia have tons of useful information, online calculators, and more.
3. Use Financial Management Tools
Managing your finances and money doesn’t have to be hard or boring. Thanks to the tech and the internet, there is an abundance of money tools to help you be more proficient.
But besides helping you organize and visualize your life, these financial resources can help you learn a lot too. Many of these tools have great learning centers or blogs.
Take a look at these financial products:
- Savology – Free and simple budgeting software to help you stay organized.
- Personal Capital – Keep track of your net worth, investments, and spending for free.
- Blooom – Ensure your 401k or IRA is on track, catch hidden fees, and get portfolio recommendations for free.
4. Listen to Money Podcasts
Being able to dedicate time to reading can be challenging. You may have a busy work and family life, which is exactly why podcasts are perfect.
Podcasting is huge!
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).
There are too many awesome podcasts to list and all vary in length from 10 minutes to almost an hour of strong info. This is free financial advice you can listen to! Here is a great list of some of the best finance podcasts.
5. Take a Financial Literacy Course
So besides books and online publications, you can totally get involved in a financial literacy class or course. Whether that is at an online school, college course, adult education center, etc.
This is if you feel you want to go a step further or need the structure to learn. Many are paid, but there are some free courses online that can be a great educator too.
6. Get Your Math On
I’ll be honest, I’m not a big math fan. Yet for you to be financially literate, you’ll need to bust out some of the most basic math skills.
Brush up on some math or look into some basic formulas that can help you organize your money, savings percentages, and help you to budget.
I know spreadsheets can make this easier or software will do the math for you. It’s fine if you do, but know how the math works, why it’s that number, and if you needed to — you could calculate that yourself.
7. Read the Government Resources
I know some of you may have a slight distrust of the government — tin foil hats, big brother is listening, etc.
Okay, all that aside — the government does have some useful resources to try and get you to learn more about personal finance. More information is on the Treasury website with other resource links.
8. Break Your Consumer Mentality
A big challenge for many Americans, is we have a consumer mentality. But it’s really unavoidable at first.
We are targeted with ads EVERYWHERE, media promotes lavish lifestyles, social media makes of envious of others possessions, we worry too much about what others have, etc.
Over your financial literacy journey, you’ll learn to break the consumer mentality and developer an investor mentality.
How can you make your money go to work for you, instead of some instant gratification of items you lose interest in quickly? That’s the key question to break a bad consumer habit.Extra: You can also learn a lot more about money or ask specific questions on Reddit. It can be a great place to learn and think differently about finances. Here are some of the best Reddit personal finance communities you should follow.
The Benefits of Financial Literacy
By now, you probably are starting to understand the power of financial literacy. You probably are also piecing together the benefits this will have on your present and future finances.
And you have the tips to get you on the right path.
But if you need some further convincing, here are some of the benefits of becoming financially literate.
You gain control
Instead of letting money control you, now you hold the reins to your personal finances. This empowers you and makes you feel more confident and decisive with your money.
Additionally, your attitude towards finances changes. The way you look and think about money alters for the better.
Eliminating and avoiding debt
Debt is one of the biggest hurdles many younger generations are facing today.
When you have financial education, you start to really understand how debt works, interest rates, and how to avoid debt disasters. It can also help you create a plan to attack any current debt and save yourself thousands of dollars.
Value financial goals
As you gain financial knowledge, you’ll be more inclined to set goals for yourself. And besides that, you may find yourself excited and more determined to work towards achieving those goals.
If you are interested in learning more, here are some tips to creating financial goals and sticking with them.
Being able to identify fraud
This might not be talked about often, but financial literacy can really impact your knowledge about identity theft and scams in the finance space.
You can start to catch any red flags with investing, banking, or any other money-making schemes. And, it will ensure you can take your time when making any financial decisions.
Certainly, consult with someone if you need help, but now you can also tell if someone is offering you terrible advice or services that may rip you off. And it enables you to ask the right questions and evaluate your options.
Consider using identity theft software, it can help protect your credit, banks, and overall identity and help you recover before damage is done. Some topic products include:
Financial Literacy FAQs
While I covered the majority of what you need to become financially literate, you may still have some lingering questions. Here are a few common questions you might have.
What is the meaning of financial literacy?
Financial literacy is about your ability to manage and make money, as well as the basics of creating a budget and how to invest for the future. Becoming self-sufficient in the basics of finances leads to a more stable financial life.
What are the main components of financial literacy?
The five main components of financial literacy include:
- Basics of Budgeting
- Prioritizing Saving Money
- How Investing Works
- Understanding Debt
- Financial safety & Identity Theft
Who needs financial literacy skills?
Everyone needs basic financial literacy skills! From children to current students in school, and most definitely adults. Many components of financial literacy can be taught to young children, with the topics slowly getting more advanced as they get older.
These financial concepts are not hard to learn and when broken down over time, anyone can become a master of finances.
Why is it important to be financially literate?
Financial literacy is important because it helps prepare you with the skills needed to manage money and ensure you do not struggle financially. Without a basic understanding of finances, you leave yourself vulnerable to bad money habits.
As the years pass, mastering your finances, taking control of debt and your investments is on you. Learning how to manage money is not easy at first, but once you build consistent habits, you’ll find your money (and life) to be less stressful.
What are some good books that will make me more financially literate?
One great way to become financially literate is to read books. Here are a few that will start to get you on the right path:
- I Will Teach You To Be Rich
- Rich Dad, Poor Dad
- Your Money, Your Life
- Money Master the Game
- Napkin Finance
- The Everything Budgeting Book
What is financial literacy month?
National Financial Literacy Month is recognized every April in the United States to help bring awareness and highlight the importance of financial literacy, to teach Americans how to establish good financial skills, and to encourage everyone to work on their financial wellbeing.
Now that you got a full breakdown, do you want to put your current knowledge to the test? There are some financial literacy tests out there, here is one that might be worth trying.
And don’t worry if your score is not great, use the above tips to help get you started on track. Not only will you know so much more, but your future finances will thank you.How do you feel about financial literacy? What are you doing — or did you do — to learn about personal finances? Let me know in the comments below!