Financial literacy is defined by Investopedia1 as “possession of knowledge and understanding of financial matters.” Yet, financial literacy entails more than just knowing about financial concepts. It means knowing how to apply and actually implement them to your personal financial situation. All the knowledge in the world will get you nowhere if you don’t use it to help your finances.
Face the Facts
Part of being financially literate means having an honest evaluation of where your finances stand. While looking on the bright side of things can be good, there’s a difference between being positive and being in denial. The first step to being financially literate may be doing an assessment of your income, liabilities, assets, and expenses to see where you stand. Even if you are not the primary income source for your family, you should be very familiar with the family finances. If you are not, sitting down with your spouse and going over your finances will be very helpful for everyone involved.
Evolve Your Knowledge
Because your situation through your life is constantly changing, the knowledge and the skills you use must change as well. Financial knowledge taught when you were 16 years old in your first job will not be adequate for handling the finances of a family. Make sure you reevaluate your financial situation every time a change comes along, such as a new job or the birth of a child, so you can remain up to date on the knowledge you need.
Consequences of Low Financial Literacy
If you don’t know how to manage your finances, there can be some serious consequences. Leslie Tayne of Tayne Law Group mentions how low literacy in financial matters has a correlation to missed mortgage payments, large debt accumulation, and even broader economic consequences such as bad business cycles and increased inflation. If you remain ignorant of financial matters you hurt yourself.
Take the first step in becoming more financially literate today. Analyze your finances and find the places you lack knowledge in and can improve. By constantly keeping up to date on your money situation and any new information available to you, you will be able to avoid the negative consequences of poor financial education.
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1Fernando, Jason. (2023, Mar 30). Retrieved from: https://www.investopedia.com/terms/f/financial-literacy.asp