What Is Financial Literacy?

Financial literacy is about being able to grasp and utilize various financial skills successfully. This includes personal money, allocation and preparing for your financial future. It is vital because it arms you with the necessary knowledge and skills to handle money effectively. It’s one thing that will have an effect on nearly every facet of your life. However, most people do not have the necessary financial education. Those that do possess the knowledge neglect to pass it on to future generations.  

What Is Financial Literacy? 

The term financial literacy seems to make people nervous. So, let’s break it down. It is common knowledge that the word “financial” is related to anything having to deal with money. According to the Merriam-Webster dictionary, the word “literacy” means;  The ability to read and write or knowledge that relates to a specified subject 

In a nutshell, the term “financial literacy” refers to one’s ability to read and understand money. It's your ability to make knowledgeable and effective choices in regards to how you handle your finances.  

What Does Financial Literacy Consist Of? 

Financial literacy consists of a variety of components. All of which stand to help you maintain balance and financial freedom. So, what are these components? 

1. Budgeting – Making a budget and sticking to it, helps you to live within your means. As it is said, you cannot have champagne taste on a beer budget. This is one of the simplest ways of maintaining control of your finances. A budget is a simple blueprint of where your money goes on a monthly basis. When done properly, it keeps you responsible and helps you recognize your financial habits. Most importantly, it decreases frivolous spending.   
2. Saving – Saving is one of the most critical facets of sustaining your financial well-being.  The ambitions of most people revolve around huge financial acquisitions. Purchasing a home, expanding your family and seeing the world are harder to accomplish if there is no money in the bank.  
3. Investing – To successfully invest, you have to know to you put your resources to work to accomplish your financial objectives. You need to comprehend the various avenues of investments, the risk-vs-reward factors and how critical it is to have a diverse portfolio.   
4. Understanding Credit/Managing Debt – Credit, credit, credit. Your score should be viewed as your second skin. It sticks to you for life. It can hinder or assist you based on your past financial decisions. Successfully controlling debt is important to maintaining a good credit score.   
5. Paying Bills – No one likes to pay bills but they’re a necessary evil if you want to live a half decent life. It’s simple. Pay them and do it when it's supposed to be done.  

All of the above-mentioned fall under the umbrella of financial literacy. It isn’t as complicated as it may seem. When you look at the list, each item is something that you have either done, are doing or thought about doing. You may not be a financial genius but I can guarantee that you have more financial sense than you think you do.  

We Weren’t Taught. So, We Must Teach 

I feel safe in saying that this pandemic has cause a lot of people to take notice of the results of not being financially savvy. Many realized that they have no “rainy day fund”, after they lost their jobs. Some noticed how making the minimum payment on their bills have left them wondering how they're going to even do that much, with no income. The long-lasting effects of financial irresponsibility.  

Another thing I feel safe in saying is that if you ask one of these people, they will say they didn’t learn about finances in school. I. for one, can attest to the fact that my public-school education did not consist of anything that would assist in making me financially responsible. There were no classes on saving and spending wisely. I was taught how to count money and how to work for it. There were no lessons on how to make it work for me. The results are devastating.  

Today, it is the responsibility of the financially illiterate to ensure that their children are the opposite. So, how does this work. The easiest way is to lead by example. Change your financial minds-set. Take steps to restore your credit.  

 

In the words of a very wise woman, “It’s never too late to change what you’re ashamed of!”