We all start out not knowing anything about money. However, we each have our own story that explains how we learned what a dollar is really worth – whether it was a stint with a lemonade stand or babysitting. April is Financial Literacy Month, read through this guide to ensure you are financially literate.
The government says financial literacy is: “the ability to use knowledge and skills to manage financial resources effectively for a lifetime of financial well-being.” That’s fine as a broad definition, but it lacks the specifics consumers and parents need to determine whether they’ve achieved the goal of being financially literate.
There is no one, agreed-upon list of financial literacy standards, but there are many things that experts broadly agree are necessary to call one’s self financially literate.
• Understand taxes. Specifically, their effect on your income, and why your take-home pay is not as great as your salary.
• Basic money management. Know how to create a budget, set financial goals and save for them, and make good decisions with regard to your personal finances.
• Credit and debt basics. Know how to apply for loans of various types, understand what borrowing with credit costs in the long run, understand interest rates & fees associated with borrowing, understand the borrower’s rights and responsibilities, know how to obtain and interpret a credit report & FICO score, and understand the bankruptcy process and its consequences.
• Saving and investing. Understand the different options for long-term saving. Be prepared to make informed decisions about making investments and about financial planning.
• Insurance. Know how insurance works, its role in family financial planning, and how to manage risks to your personal finances.
• Spend wisely. Be a cautious consumer who makes good decisions with regard to spending and assessing the value of goods and services. Be able to understand and analyze advertising and sales pitches.
That’s only a basic overview, and it still seems like a lot. It is! Being thoroughly and truly financially literate is a long-term project. We think consumers can always be working to improve their level of financial literacy. Even otherwise sophisticated adults are still taken in by financial scams and bad investments. The best way to prevent that kind of loss is to be taking steps to be more financially literate through all stages of your financial life.
Remember, April may be financial literacy month, but you should take an active interest in your personal finances all year round. Be sure to read through this guide.
For a start on understanding some of these topics better, check out our Budgeting 101 and Budget 911 courses. Also download free .pdf booklets like The Power of Paycheck Planning and Understanding your Credit Report and Score.