As important as it is to learn to read and write, becoming financially literate is equally important. It helps you get educated about the basics of money.
Having financial literacy helps in developing a stronger understanding of the financial terms and helps you manage your money better.
You will be surprised to know that:
- Only 20% of Americans do any savings out of their paychecks and the ones who do are not saving enough.
- As per a survey conducted by GoBankingRanks, 64% of the Americans are going to retire with only $10,000 in their bank account.
- Almost 50% of Americans currently live paycheck to paycheck as per a report published by MarketWatch.
So, these numbers make it pretty evident that the majority of the population is lacking knowledge about the basics of financial literacy to understand the importance of saving money, invest in 401k, creating a monthly budget to stop living paycheck to paycheck, and so on.
What is financial literacy and why is it important?
Financial literacy is having the knowledge and understanding to make smart financial decisions.
Financially literate people are more efficient at managing their everyday expenses as well as planning and managing money for their long-term financial goals.
It not only teaches you about good financial principles but also teaches you about the action steps that you need to take to ensure a financially independent life.
Importance of financial literacy
Financial well-being is an essential part of your overall well-being. So, to ensure that you are doing better financially, you must have proper knowledge about managing your money.
It doesn’t only mean that you need to know how to manage your daily expenses, but you should know how much to save and how to invest so that you can achieve your long-term financial goals are achieved.
Who needs personal financial literacy skills?
The short answer to this is:
Not only adults but we need to teach our kids about the importance of money as well. We can start with simpler concepts like saving money in piggy banks, avoiding overspending, etc. in the early years and gradually move on to complex concepts like investments, retirement, etc.
No matter what career path you choose in life, you will be dealing with money all the time. So being financially literate helps you in making good money-related decisions in life. Also, you don’t need a degree in finance to be financially literate, but you can easily learn about it on the internet, in books and magazines.
What are the benefits of financial literacy?
Here are the few benefits of being financially literate:
- Less Debt: Debt is your biggest enemy when it comes to finances. If you do not manage your debt properly, you may financially struggle throughout your life for paying off that debt. So, by honing some financial skills, you will be able to manage money well and keep your debt at a minimal level.
- Better Control Over Money: Once you have a better understanding of money, you struggle less with managing money and have better control over your finances. You feel more confident about your money decisions and experience more success with money.
- More Awareness About Fraud: As you become more financially aware, you can identify frauds more easily. You can ask the right questions at the right time to catch any red flags before making any investment or other money-related decisions.
- More Financial Stability: With financial literacy, you are mindful about money. You focus more on saving money rather than spending it which brings in more financial stability in your life.
Resources for financial literacy
Don’t be discouraged, if you are feeling that you don’t know anything about finances at this point. You can still start learning about it to make sure you are making the best financial decisions in your life. Here are a few ways to become financially literate:
Read money books:
Books are one of the best resources to learn more about money. There are many books in the market from various financial experts that teach you different aspects of money like budgeting, investing, retirement, etc.
Here are a few of my favorite ones:
- The Total Money Makeover
- The Rich Dad and Poor Dad
- The Only Investment Guide You’ll Ever Need by Andrew Tobias
- Your Money or Your Life
- Broke Millennial
Just take it easy and go through one or two of them and you will become more money aware.
Financial management tools:
You can also use various financial management tools like Mint, YNAB, etc. that help you manage your finances as well as teach you about it. They have tons of resources on their website as well as they send you personalized tips as you use these tools for managing your money.
If you find reading books boring, you can try listening to money podcasts. The podcast can be listened to anytime and anywhere to get a ton of valuable information.
So, if you are work or traveling or waiting at a doctor’s clinic, just listen to an episode or two during the week and you will learn a lot about money.
Here are my few favorite money podcasts:
- The Dave Ramsey Show
- The BiggerPockets Money podcast
- Planet Money
- Radical Personal Finance
- Afford Anything
There are tons and tons of resources online that share valuable personal finance knowledge for FREE. So, of the good ones are websites like GoBankingRates, Student Loan Hero, BankRates, and personal finance blogs like mine.
Also, you can check out some online courses on Udemy and enroll in them, you can find some pretty good free as well as paid courses.
Local personal finance literacy resources
You can also check with your local community colleges or library to see if they have some workshops or courses that they conduct from time to time to impart financial literacy. It would be a great way to learn more about money.
Seek professional help
There are many highly-competent financial adviser available in the market. Their primary job is to help the clients lay out a financial plan to achieve their financial goals easily.
So, if you are struggling to figure out your finances, it is always best to seek professional help. They will educate you about different investment options available in the market and as well as recommend the best ones for you.
How to become financially literate?
Now that you know about financial literacy resources, use these tips to become financially literate without getting overwhelmed. These tips will help you learn about the basics of money without getting intimidated by tons of resources available these days.
Take your time:
You cannot overhaul your financial position in just one day. You need to develop good money habits to improve your overall financial situation in the long run.
Start with tracking all your expenses for at least a month. This will help you become aware of how are you spending your money.
This is the first step on your journey to becoming financially literate by understanding where your money is going. This will help you with cutting down on unnecessary expenses.
You can do it a conventional way using a notebook or pen or create a spreadsheet or use a money management app like on your smartphone.
Focus on the basics:
Your aim is to get the basic knowledge of money and not becoming a financial guru.
Once you understand the basic concepts of financial literacy like budgeting, investing, debt, interest, etc., you will start understanding other concepts as well.
Whenever you come across and financial term you are not sure of, just google it up and read the simple definitions to know their meaning.
Learn about debt:
Understanding debt is very important. You need to be aware of different kinds of debts like mortgage, student loans, credit card debt, personal debt, etc. and how they impact your financial situation.
Not all debts are good debts. Some debts can be bad and hurt your finances for life if not handled properly.
Understanding the difference between savings and investments:
Most people do not understand the difference between savings and investments clearly.
It is important to save money and set aside a certain amount of money each month for your financial goals like buying a house, retirement, etc. But you won’t be able to achieve those goals if you do not invest your saving money.
Saving is just about keeping aside money in a checking account or something which fetches a very low return. While, investments like mutual funds, real estate, shares, bonds, etc. help you earn a higher return to meet your financial goals.
What are the Basic Concepts of Financial Literacy?
Here are a few of the basic concepts about money that you should know to improve your overall financial health:
Preparing a monthly budget and sticking to it is the most essential aspect of managing your finances well.
It helps you keep track of your income, expenses, and savings so that you know where your money is going. With so many people living just paycheck to paycheck, preparing a monthly budget ensures that you are only spending the money on the things you need.
It helps you keep accountable for cutting down unnecessary expenses and put some money towards savings as well.
It is important to have an emergency fund that can cover up to three to six months of your expenses in case of medical emergencies, loss of a job, etc. It helps you in being financially prepared for any surprises that life can bring to you.
Savings is the key to your good financial future. You need to make sure that you are contributing enough money towards savings from each paycheck. This makes sure that you have secured the financial future with enough funds for your kid’s college, marriage, medical expenses, retirement, etc.
The concept of saving should be taught to kids from early on. This helps them in developing good financial habits for a lifetime. You can start simply by having them put away $5 or $10 each week in their piggy bank and then let them use that money to buy something for themselves.
Debt can ruin your financial health if not managed carefully. You don’t want to take too much debt and spend your entire life paying off that debt. This can slow down your financial progress. So, you need to learn the best practices around debt to make sure you rea dealing with it correctly and making the right decisions.
With the advancing technologies, new kinds of frauds are cropping up every day. You need to be aware of identity theft and fraud issues to ensure that you are not sharing too much information online and taking the right preventive measures like password protection, identity protection, etc.
Now that you know all about financial literacy, you are all ready to start yourself educating about the money. This will help you set reasonable financial goals for yourself and understand about the ways to achieve them.
What do you think about these financial literacy resources and tips? Leave our comments below!