At RISE, we’re celebrating Financial Literacy Month this April by sharing practical ways to improve your financial wellness and build better money habits. If you’re interested in developing your financial literacy, read on—we’ll cover 3 simple strategies to bolster your skills and knowledge. First, let’s clarify what financial literacy is all about.
What does it mean to be financially literate?
It’s important to understand that financial literacy isn’t a destination—it’s a continual journey of improvement. We can always learn more and find ways to make better money-related decisions.
Financial literacy encompasses your knowledge and understanding of personal finances. There are a few elements that experts agree form the foundation of financial literacy. Researchers responsible for the S&P Global FinLit Survey highlight these fundamental concepts:
- Interest – Understanding what it means to be charged interest to borrow money and how compounding interest can impact your finances.
- Risk diversification – Knowing that it’s safer to put your money into multiple businesses or investments than just one.
- Inflation – Comprehending the relationship between increasing prices, income and your purchasing power.
57% of adults in the US are financially literate, compared to 33% of adults worldwide.
According to results of S&P Global FinLit Survey
The Council for Economic Education has identified other important components of a healthy financial toolkit, including:
- Earning – Knowing what determines wages and take-home pay
- Consuming – Creating budgets and managing spending
- Saving – Identifying factors that maximize savings
- Investing – Understanding the types, risks and return
- Debt – Managing loans and repayments
- Insurance – Learning about types of coverage and mechanisms
- Risk – Understanding uncertain financial outcomes
- Information sources – Recognizing appropriate sources and advice.
Why does financial literacy matter?
People who have better financial literacy are in a stronger position to manage their personal finances—and ultimately enjoy more personal freedom—than people who have large gaps in their knowledge. With greater financial knowledge, it’s been proven that you’ll do a better job planning and saving for retirement, and will spend less and save more. Plus, financial literacy puts you in a better position to avoid common money pitfalls, like overspending on transaction fees, running up big debts and incurring high interest rates on loans.
3 simple strategies for becoming financially literate
If you’re committed to capturing the benefits of improved financial literacy, here are three simple ways to move forward, no matter where you are in your journey:
- Ask questions. Whether you’re taking out a new loan, reviewing your 401(k) statements, or considering a new investment, if you aren’t sure about something, ask about it. Don’t be afraid to ask what certain terms mean or seek clarification about fees and conditions. Increase your literacy by addressing questions head-on as they arise.
- Find a mentor. A money mentor can provide valuable guidance and insight. As Lou Carlozo writes for Money Under 30, “Maybe you’re lucky enough to have a parent or sibling who makes checkbook digits dance like a ballerina, or can turn a few extra pennies into profitable investments worth 1,000 times as much.” If so, make the most of it! Otherwise, tap your network to find someone who can help.
- Gather as much knowledge as much as possible from a variety of sources.
There are countless self-directed ways to increase your knowledge, such as reading books, listening to podcasts, watching TED talks, attending webinars and seminars, and keeping current with relevant blogs and newspapers. You can also attend classes in-person at your local community college or check out online options, like these free ones.
Are you determined to improve your financial literacy? We’re here to support you! RISE is dedicated to helping hardworking Americans build better money habits. Check out our collection of free, interactive tools for setting savings goals and managing debt.