I attended public school while growing up, and I learned very little about financial literacy or how money works. Most people in the US share my public school experiences. It wasn’t until I grew up and started borrowing money, getting in over my head and deciding to do something about my plummeting credit scores and rising interest rates on my quickly out-of-control revolving debt, that I decided to do something about my lack of understanding in money and how it all works.
Financial literacy refers to a person’s ability to understand economic concepts and share that knowledge with others. Functions of financial literacy include how concepts are applied in everyday life, like balancing a budget, retirement planning and setting both long and short-term financial goals.
Personal financial literacy refers to the understanding and application of money principles as it pertains to an individual's situation. The more financially literate you are, the easier managing money and finances should be for you.
Grasping how money and finances work requires the ability to understand basic math and work with numbers and technology at a level that enables you to make decisions that help you solve your financial issues. Your ability to achieve goals and participate in your community in financial matters is directly related to your financial literacy.
Some people spend their entire lives learning to master their finances. Some People directly place their trust in others for planning and making decisions about their money for them. Some people want to learn as much as they can, while others don’t care about being financially literate at all.
For those who do care, know that financial literacy can’t be achieved in a matter of hours or days or even weeks. The subject of money covers so many areas of our lives that it should be looked at as more of a progression of knowledge and skills that we become better and better at over time. It’s a cumulative process. Everyone should have at the very least a solid grasp of the role that money plays in their lives and how to use the money we have to get what we want out of it.
Since no one knows all there is to know, we hope you will at least have the desire to learn what you need to know to achieve your financial goals and live your financial dreams.
Practically everyone applies money concepts to everyday life. For example, how we use credit cards or manage bills and debt, what plans we make, what we strive to obtain, and what our everyday purchases are, is a direct result of our financial literacy.
It’s unlikely that you’ll be financially fit without the knowledge and ability to apply money fundamentals. Financial literacy won’t happen overnight. So, start with the basics. Work on your mindset. Decide you’re going to develop a healthy relationship toward money and finances. Monitor your spending, buy a book about investing or insurance. The fact is, no one person knows everything there is to know about how money and finances work. Like anything, it is essential to have a solid grasp of what you need to know about money to function well every day and for your financial future.
Learn about what to avoid and then figure out where you want to focus. Victories are won one battle at a time, and avoiding money pitfalls can be a great start to financial literacy.
Common money management mistakes include not having an emergency or contingency fund, spending before saving, having money that’s not doing anything, having no tax plan, not creating or following a budget, not addressing unnecessary expenses, and not being aware of your creditworthiness.
Ignore those cash advance checks that come in the mail. Those are debt traps. Don’t keep putting off regular automobile and home maintenance. When things break, they cost more to replace then it would have cost to keep up routine maintenance.
Not facing your money worries or ignoring debt can destroy your financial future by keeping you from getting anywhere.
There are so many areas to address, it’s hard to know where to start, but finding something that interests you, and starting, is an excellent beginning to financial literacy.
Try setting a simple short-term financial goal that you know you can achieve. Perhaps save for something you want, or better yet, set a goal to set aside an emergency fund within the next few months. Start tracking your spending and review it each month, so you know where your money typically goes. That way, you can see where you spend money unnecessarily. If you know where your money goes, you can eliminate unnecessary spending.
Review your bank and credit card statements each time one arrives, and analyze each one carefully until you grasp the relationship you have with every financial institution you deal with. It’s important to know where you stand with each one, spot you’ll know how to negotiate with them. Never allow banks to charge you excessive fees, overdraft charges, and high interest rates.
Obtain a copy of your credit report and read it carefully. Make sure your credit report is accurate and up to date. Maintaining your credit is fundamental to financial literacy in today’s world. Having unnecessarily poor credit can potentially cost you hundreds of thousands of dollars over your lifetime. If you do nothing else, commit to never paying late on any debt you have.
Create a plan to become debt free. Living below your means is imperative. If you spend more than you make, you will sink deeper and deeper into debt. There’s no way around that fundamental fact. Start planning for retirement. Learn about life insurance and buy a policy.
Be flexible and make adjustments as necessary! Any good sailor knows there will be wind, rain, fog and rocky bottoms. There is no straight path to your destination. Most successful people zigzag their way as they make progress. Most progress is slow, and mistakes are made, so take a deep breath and be patient. But above all, get started. Don’t be afraid to make a mistake, and never give up. You will make mistakes, so be prepared to pick yourself up and keep going.
If you want to make things happen a little faster, consider finding a way to increase your income. You could start by selling all your excess “stuff” on a site like eBay or Amazon.
Selling stuff you no longer use or need can be very liberating. When your life is less cluttered, you’ll not only have extra money you didn’t have, but you’ll feel empowered to take the next step toward financial literacy.
Here's another idea: create things and start a Shopify store or sell your wares on Etsy. It's not very hard to set up a simple store on one of these sites. I don't know much about either of these sites, but I would suggest having at least some inventory before you open up shop.
You can earn extra money with a part-time job. There are plenty of things you can do to make extra money from home, or you could start a side hustle. Simple business creation is easier than most people think.
Personal financial literacy is important because virtually everyone makes financial decisions every day. Some choices we make are small and less significant, while others can be life-changing.
Do you have kids? You may want to see them go to college. But, how will you pay for it? Good question. Having some financial literacy can help you know what to do. There are educational savings accounts and other ways to make sure the funds for college are available when the time comes, but some planning will need to happen if you can’t pay for it outright.
Many decisions we make about money can be tricky, like what kind of life insurance policy to invest in. There’s no one-size-fits-all insurance product. The more you know, the better of an insurance policy you can negotiate.
Financial literacy is a fundamental life skill. The more financially literate you are, the more comfortable your lifestyle can be. It’s not just about how much you can make, but as they say, it’s also about how much you can keep.
Let's say you want to buy a home. There are many examples of financial literacy that you'll be faced with, like the type of financing you'll want to qualify for. For instance, if you understand the differences between conventional home loans and an FHA loan, you'll be better equipped to get ready to qualify for it. Being financially literate in home loan applications will give you an edge so you can obtain the loan that's right for you.
Should you set up a bi-weekly payment schedule, or pay monthly on that mortgage? Do you know why? What are the benefits of each payment schedule? These are just a couple of examples of how being financially literate can benefit you.
The more financially literate you are, the easier it will be to make the right decisions that affect your financial life.
In practically every way, we reap what we sow. I hope you’ll learn about money and money management and improve your financial literacy so you can sow the right financial seed.
We hope you'll start right here, but you should also get lots of input from several reliable sources to get a balanced set of views on whatever financial topic that interests you.
Spend some time working on your finances every day, and you’ll soon be getting what you want from the money you have.