7 Strategies to Improve Your Financial Literacy
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 lots of different ways you can bolster your skills and financial knowledge to make your dreams a reality. First, let’s clarify what financial literacy is all about.
- Being financially literate means that you know how to take steps to move toward your financial goals.
- If you're financially literate, you will have more possibilities to live a life with less financial stress, regardless of where you are now.
- Surrounding yourself with learning tools and a positive peer group is a key step in learning how to become financially literate.
What is Financial Literacy?
One of the trickiest things about financial literacy is that there isn't any one definition of it.
Some people use the term "financially literate" loosely to mean you have basic money management skills for your bank account. Others, such as the Milken Institute, use a more comprehensive definition that considers you to be financially literate if you have these four things going for you:
- Knowledge: You know about the financial decisions and products available to you, as well as common financial concepts like interest rates, inflation or how to open a bank account.
- Skills: The ability to understand and work with numbers and interpret things like annual percentage rates (APRs) or annual percentage yields (APYs).
- Attitude: You're confident that you can figure out the right steps to achieve your goals, even when facing challenges.
- Behaviors: You make a habit of doing things to reach your goals, like budgeting, using a savings account on a regular schedule, and getting financial advice when needed.
What Does it Mean to Be Financially Literate?
Being financially literate means that you live your life with less financial stress because you've designed things so that you can best afford them. Even if you're facing hardships like having debt and a low income, you know the steps to take to tackle that hurdle and move on to a better place. Yet many people in the United States today are not considered financially literate. According to the 2021 P-Fin Index Survey from the Global Financial Literacy Excellence Center, which measures knowledge that enables sound financial decision-making among U.S. adults, respondents generally only answered half of the survey questions correctly.
A larger S&P Global Finlit Survey measured financial literacy around the world and found that on average, 57% of Americans are financially literate, compared to just 33% of the rest of the world. Some countries, such as Norway and Denmark, scored much higher, with an average of 71% of adults being financially literate.
An even more convincing FINRA study came out in 2020 when researchers followed 1,500 people of varying financial literacy. They found that the more financially literate a person was, the better their financial life outcomes were six years later. They were more able to afford a surprise $2,000 emergency fund expense, put money away in retirement savings and generally be happier financially.
7 Strategies to Improve Your Financial Literacy
Becoming financially literate doesn't happen overnight. It's more of a journey, and you'll always be learning. You don't have to get everything right immediately. But here are some great places to start, no matter where you are on the path:
1. See if your bank, credit union or community offers financial education classes.
If you're just starting, you can often find good classes that provide a broad overview of what you need to know about basic financial ideas like budgeting, retirement planning and how to buy a house.
You can find free personal finance courses like this in a lot of other places, too, such as your local housing counseling agency or your local library. RISE also offers free personal finance tools to help you build your financial literacy.
2. Follow personal finance blogs.
Your financial situation is unique, but we can promise you that there are people similar to you who are learning about the importance of money management as well.
Spending a few minutes googling personal finance blogs plus groups you're interested in (such as "personal finance blogs for women" or "personal finance blogs for millennials"), you’re sure to find something close to what you're looking for.
If you find someone you really like, make sure to sign up for their email list, so you don't have to remember to go back to their website each time. You'll get their tips and tricks sent directly to your inbox.
3. Listen to personal finance podcasts and YouTube channels.
Just like blogs, personal finance podcasts and YouTube videos are often easily digestible formats where you can learn. The best part is that you can listen while driving to work, folding laundry, or working on your hobbies.
You can often find on podcasts and YouTube videos that cover the same topics as personal finance blogs. In fact, many bloggers even have both.
4. Join personal finance groups on social media.
Reading and listening to personal finance content is great, but it's sort of a one-sided relationship. Instead, you can make things more interactive by joining a community on Facebook or following your favorite bloggers, podcasters and YouTubers on social media.
Joining a personal finance group means surrounding yourself with peers who have similar interests. You'll get support from people going through the same problems you are and get new ideas that you may not have thought about before. The more you can learn from people interested in the same thing you are, the more you’ll grow in areas that excite you.
5. Find a financial accountability partner.
If you're like many people, you'll find it easier to stick to new positive habits if you have an accountability buddy. This can be especially handy for long slogs, like getting out of credit card debt or paying off your student loans.
If you can find someone who's been on a similar journey, you may be able to gain a new understanding of topics like staying on track with a new budget or keeping your grocery bill under a certain amount. If you can set up a regular check-in, you’ll also be helping each other.
6. Get help from an expert.
If you really aren't feeling confident about where to start, it can be handy to work with a professional who can get you on the right track. Financial advisors are a good choice, although they typically only work with high-income earners. Look for a fee-only fiduciary advisor rather than a financial advisor who works for an investment company.
If you aren’t a high-income earner, don't worry. You can still get free or affordable financial planning from a credit counseling agency. To start, you can get connected with a reputable company through the National Foundation for Credit Counseling, which can help you develop a budget and get started with a debt management plan — often for free.
7. Start a budget
Creating a budget may not sound like fun, but don’t let your preconceived notions deter you. While you can certainly set up a budget like your grandpa did on a lined paper if you want, but nowadays, we have more modern options for how to build a budget. Many of them even run on autopilot, so you don't have to micromanage your finances.
A budget is essentially your road map to financial success and it’s hard to understate its importance. Through a budget, you can set up your spending habits so that you'll be able to afford your short-term and your long-term goals every month.
That's what true financial literacy is, after all.
You Can Learn How to Become Financially Literate
We've outlined a lot of ways for you to learn how to improve your financial health here. Don't be overwhelmed, though; you don't have to do each one. If you find an option that speaks to you, commit to doing that one thing on a regular basis. Before you know it, you'll be on your way to a more positive financial future.
This content provided is for educational and informational purposes only and does not constitute financial or legal advice. RISE is not acting as a credit counseling or repair service, debt consolidation service, or credit services organization in providing this content. RISE makes no representation about the reliability or suitability of the information provided – any action you take based on this content is at your own risk.