What Are the Benefits of Financial Literacy in 2022 ?

 Financial literacy unlocks the door to financial success.

The main benefit of financial literacy is that it empowers us to make smart financial decisions. It provides the knowledge and skills we need to manage money effectively—budgeting, saving, borrowing, and investing. This means that we’re better equipped to reach our financial goals and achieve financial stability.

The particular benefits of financial literacy will differ depending on a person’s circumstances, but some common situations in which financial literacy can help include:

1. Saving for retirement.
2. Creating and sticking to a balanced budget.
3. Purchasing a home.
4. Selecting insurance.
5. Reducing expenses.
6. Investing.
7. Buying a car.
8. Saving for college.
9. Managing debt.
10. Using credit cards.

Why financial literacy is important

Financial literacy is important because it equips people with an understanding of basic financial concepts to inform their real-world financial decisions. With this knowledge in hand, they’re better able to manage their money, make sound decisions, and maintain healthy spending and budgeting habits, which over time can lead to financial wellness.

The importance of financial literacy becomes especially clear when considering the financial challenges that many people face:

1. 78% of Americans live paycheck to paycheck.
2. Student loan debt is US$1.5 trillion for more than 44 million borrowers.
3. Credit card debt is up to a record $1.04 trillion.
4. 21% of Americans aren’t setting aside any money for short-term or long-term goals.

To address these issues, leaders in education, business, and the government are stepping up efforts to provide financial education and expand financial literacy across the United States.

What it means to be financially literate

Put simply, to be financial literate means someone has an understanding of essential financial concepts. These include:

1. Budgeting.
2. Saving.
3. Credit.
4. Debt.
5. Insurance.
6. Financial decision-making.

The second part of financial literacy is using financial knowledge to inform financial decisions and establish healthy money-management habits. Financial literacy skills include:

1. Creating a budget.
2. Calculating interest.
3. Lowering costs by reducing “want” purchases.
4. Evaluating loan terms.
5. Comparison shopping.
6. Doing taxes.
7. Saving money.

Financial literacy knowledge and skills contribute to smart financial decision-making and the ability to carry out the decisions that are made.

How to become financially literate

Financial literacy is acquired by learning financial concepts and practicing them. Many people receive informal financial education from family members or role models—parents who teach their children how to write a check, for instance. However, formal financial instruction from a trusted provider offers a more comprehensive and reliable education. Schools, banks, and nonprofit organizations are just a few of the sources that offer financial education. Online resources include the following:

• • EconEdLink: Classroom-tested online finance lessons designed for K-12 students but great for learners of all ages.
  • InCharge: A nonprofit dedicated to empowering consumers through personal finance education and educational partnerships. Online resources include ebooks, calculators, and games.
  • MoneyWi$e: A partnership between Consumer Action and Capital One, this program combines free, multilingual financial education curricula with regional meetings and roundtables to train community-based organization staff.
  • Better Money Habits: A collaboration between Bank of America and Khan Academy, this site includes animated videos to cover financial literacy basics as well as more in-depth topics.
  • Money Smart: The FDIC’s program provides free tools for people of all ages to increase their financial literacy. Resources include lesson plans, videos, podcasts, and games.
  • OppU: Standards-aligned online courses that teach the fundamentals of personal finance: spending, budgeting and saving, credit, and debt and loans.

Frequently asked questions about financial literacy

What is financial literacy?

Financial literacy by definition is having the knowledge and skills to manage money wisely. It’s a broad definition, but it takes on different meanings for different people. One of the most common understandings of financial literacy is for people to have all the resources and tools needed to handle their personal finances while understanding the impact of their decisions on financial stability. For instance, a financially literate person knows how education can shape career prospects, which then impacts salary and, ultimately, quality of life.

Why is financial literacy important?

Financial literacy is important because it equips people with the knowledge and skills needed to manage money effectively. What does this mean? Basically, financial literacy ensures that every financial decision in a person’s life is backed by a rationale that empowers them to feel confident and secure in their choice.