What Is Financial Literacy?

Financial literacy is all about learning how to do more with, and get more out of, your money. Financially literate people know how money can work for them. The goal of financial literacy is to understand how to earn, spend, save, manage, and invest money. And to do this, you need to get clear on how the economy works. The possibilities for savvy, financially literate individuals are endless, making it something you should definitely care about.

This guide will further explain financial literacy, why it matters, and the steps that you can take today to increase your financial literacy.

What Is Financial Literacy?

The most basic concept of financial literacy is the ability to understand your money. Being financially literate means grasping concepts surrounding money such as budgeting, saving, investing, credit, debt, insurance, and interest. With this knowledge, you're able to make smarter decisions about what you do with your money and how to organize your finances.

By understanding your finances and learning how to manage your finances effectively, you can meet your financial goals more easily. In addition, financial literacy will help you feel confident setting a budget, give you the tools to start saving money, and help you to understand the impact of interest rates on your credit card, savings account, or loans. Although financial topics can be confusing, taking the time to become financially literate will make it easier and more exciting to deal with your finances.

Why Does Financial Literacy Matter?

Financial literacy matters simply because it helps you improve your life and can help reduce financial stress. Many people don't attend to their personal finances because they find the subject boring or confusing. Others may be afraid of looking at their finances due to feelings of lack. But the truth is, understanding basic financial concepts can completely transform your life. Once you learn how this knowledge can improve your financial situation, it becomes a lot more exciting.

By being on top of your money situation, you can live a life where you feel more financially secure and sure about the decisions you make. Instead of feeling a sense of lack, this knowledge will make you feel safe enough to live the life you really want to live. Financial literacy is the ultimate way for you to empower yourself. It matters, and it matters more than you think because minimizing your debt and creating a savings cushion will help you become financially free.

Steps to Increase Your Financial Literacy

Most schools don't teach you about personal finance, so it's important that you educate yourself on this topic. The more you know, the better your decisions will be. With this information, you'll feel empowered and secure about your future.

Here are five steps you can take to increase your financial literacy today:

Step 1: Learn One Topic at a Time

When it comes to personal finance, there is so much to learn. If you try and figure everything out at once, you'll end up feeling overwhelmed and give up. Instead, take it slowly and tackle one subject at a time. Take time to digest everything you learn about that topic and then apply it to your personal finances to understand it fully. Once you do, you can move onto another area of finance. Start with an area that would be most relevant to your life right now, such as budgeting, looking into how to save money for a car, or asking how much should you save a month.

Step 2: Make Use of All the Available Resources

It has never been easier to become financially literate than it is today. You have access to a myriad of incredible resources online. Make use of it by devouring as much financial media as you can. There are plenty of different ways to consume this information. For example, taking a free course, reading blog posts on financial websites, listening to podcasts, reading financial literacy books, or downloading a savings app that will help you put what you learn into practice.

Step 3: Don't Be Afraid to Ask for Help

You're not expected to know everything right from the start. Chances are you weren't taught how to handle your finances. So you need to teach yourself. Although self-education is a great start, there will come a time where you might need some professional assistance. Perhaps in the form of advice from a family member or friend. But if you're really serious about becoming financially literate, you may want to work with a certified financial planner.

Step 4: Take Action

It's important to take action as you learn about various financial concepts. Once you know the value of a budget, take some time to track your spending and then set a budget for yourself. When you learn how and why to save money each month, take it as a reason to finally establish your emergency savings fund or set a money goal. If you've developed a working understanding of banking, then take a look at online banking pros and cons to consider switching a bank that may benefit you more. The value of financial literacy will only become truly apparent to you once you start putting it into action and reaping the rewards.

Step 5: Keep the Momentum

As you learn, take action, and see results, you may reach a point where you hit a wall. Don't let it stop you. Keep going. The goal of financial literacy is to become financially free. That doesn't happen overnight. It takes time and consistent effort. It takes living on a budget, saving vs paying off debt, making good investments, keeping motivation with financial freedom quotes, and much more. Keep your momentum going, and know that it will pay off in the end.

Become Financially Literate

Now that you know all the benefits of financial literacy and exactly how it can improve your life, it's time to take the necessary steps to become financially literate. We firmly believe in setting financial goals with your priorities in mind and live to help you accomplish these goals.

See how Monorail can help you to start setting your goals.