What is financial literacy?
If you want to have success, you need to prepare yourself. Remember, if you don’t plan, you’re predisposed to fail. Being successful in your personal, family and professional life means having at least a basic level of financial education.
The more prepared you are, the better the decisions you will take when you need to prepare efficient financial strategies that will help you achieve the things you want in life. Being prepared, and modeling by example, this means making good decisions that bring wellness to your family, will help you spread a proper culture to your near circle, bringing a positive change in their lives.
It is essential to work on acquiring this knowledge and skills throughout our lives. This can be seen in our family, in our formative years, in our work environment and even when we interact with the financial system. With a solid foundation of financial knowledge and skills, budgeting, saving, controlling and prioritizing our expenses, choosing a loan or planning for retirement is much easier.
In fact, not many people have advanced financial literacy skills. Managing their bank account, a debit card, reading and evaluating a bank statement, or understanding interest rates on a loan are some of them.
The findings of these studies suggest that financial literacy needs to be improved. especially women, younger people, people with lower incomes, and people who have not received adequate general education. All of these groups tend to have less financial understanding than other groups.
But what is financial literacy anyway??
Financial literacy is the capacity an individual has to understand the basic concepts of personal finances and proper management of money. Is not enough to understand these concepts, you need to apply them effectively in your daily life when you face financial challenges to overcome them successfully as you achieve your personal objectives.
Everyone must learn about finance
The financial literacy of society is a shared responsibility involving families, the education system, financial institutions, regulators and society in general. It is essential to learn basic finance from an early age at home, at school and throughout our academic and professional lives.
We can also be self-taught and spend time learning about this topic on social networks such as YouTube or Instagram, visiting expert blogs or consulting personal financial advisors.
Learning how to manage your current finances can serve as a solid foundation for a prosperous financial future. The more you understand the ins and outs of personal finance, the more confident you will be as you establish a solid emergency fund, pay off student loan debt, purchase a vehicle or home, make investments (short and long term) and plan for retirement. Financial education can help you feel more confident by helping you make smart, informed financial decisions.
On the other hand, not being financially literate can complicate life. For example, you may be more vulnerable to debt, bankruptcy, foreclosure or fraud. Any of these obstacles can get in the way of the goals you’ve set.
- Financial education, like any other type of education, is intended to help you improve, make better decisions and move forward.
Putting financial literacy into action
To really understand financial literacy at a level that is conducive to success, you need more than just repeating facts and definitions. Educators are aware that cognitive learning, which is the kind of understanding you really need, can occur at six levels.
Applying those six levels into financial literacy involves putting into action. The first you need to do is start making yourself familiar with all related concepts within a specific financial topic. After that you need to understand those topics deeply and look for ways in which you can apply them to your daily life. Once you are clear about this, it is time to take action and put those ideas and planning to create a solid financial base.
Once you have completed the action process, now comes the analysis. check what you did and compare what worked, what things should be improved and what things are better to change. Then start applying all over again and see what works for you and make it your financial plan.
Finally, you will be prepared to evaluate your success on that specific topic to either go back to learn more or move on to the next topic you need to understand and incorporate into your daily financial life.
Eight key areas of financial literacy
Your financial life is a well-oiled engine that helps you keep moving forward and has many parts that will help it run smoothly. With this in mind, it can be helpful to break the group down into different areas so you can know where and how to focus to increase your knowledge.
Let’s divide it into eight basic categories.
This represents your capacity to understand topics related to your daily management of money. This includes concepts like sources of income and expenses and monthly payments.
This is your capacity to save money and allocate funds to save for investments in the future. This requires you knowing how to operate with bank accounts, interests, investments and many others.
- Basic needs management
When you can manage all costs related to the necessities of life, such as housing and transportation, it is called basic needs management. This involves managing monthly bills and even being familiar with insurance.
Banking discusses the details of managing your accounts. This means you should know how your accounts work and any charges, fees or terms that apply.
- Health cost management
Managing health care costs can be difficult due to complex issues such as deductibles, health insurance and coverage levels. If you don’t have a solid foundation of knowledge on this topic, medical expenses can ruin even the most stable budgets.
- Debt cost management
Your ability to effectively take on debt and understand the terms and fees that apply to things like loans and credit cards is known as debt management. Debt can ruin your finances without a solid understanding.
- Credit management
The ability to manage and maintain your credit profile is known as credit management. This includes your credit scores, credit reports and how to contact the credit bureaus if you have problems. Lending laws are constantly changing.
- Retire planning
Budgeting and saving are included in retirement planning, but then applied to the long-term financial planning necessary for stability in your golden years.
With strong knowledge in these eight areas, you can be able to achieve financial stability, overcoming all the typical challenges that people can confront in their daily lives.
Why do we lack knowledge about financial education?
Most of us have not been educated about personal finance in school, and in any case, we have only learned some basic lessons. In addition, due to the rapid evolution of technology, some of the lessons we learned no longer apply. For example, many older clients may have learned how to balance a checkbook, a critical skill that was almost unimportant in today’s world a few decades ago.
Therefore, most of us start life behind when it comes to financial literacy if we don’t receive a proper education, and then the problem is compounded by how quickly the financial world is changing. As a result, we often turn to our parents for the information we need, and they learn everything they know the same way we did. Pass on what you learned from experience to your children in the hope that they will have a better future.
What can be done for this?
Financial education is ageless: we can all improve these skills at any time in our lives. Building your own knowledge base should be the first step. You can start by using the free resources available online. Examine the eight topics above and identify the areas that are unfamiliar to you. If you need help, especially in the beginning, looking for a professional or a school is a good option. In Ireland, Nala is an example of an agency that offers courses in financial literacy.
Once you’ve built up your own knowledge base, you should also share this information with your family members, especially your children – they’ll be happier when they start living on their own if they can do this as early as possible!
Ultimately, it is about understanding and using all this information properly. Throughout our lives, there will come crucial moments when we will need to use financial goods and services to achieve goals and dreams, such as studying for a master’s degree, buying a house, embarking on a business venture, having children, retiring…. Today, this training will be essential to make the best decisions and be better prepared in case of emergencies.
Managing your money properly is a really important life skill, which can help you achieve your goals and live a more comfortable life. A world of opportunity opens up when you know how to make the most of the money you earn. Don’t let another moment pass you by! The sooner you start developing your financial education, the sooner you will enjoy your growing financial knowledge.