Understand Basic Financial Literacy
You may have probably come across financial literacy, more than a million times, on any financial news or articles on TV, print, and internet media. It applies to how you comprehend financial situations and how educated you are in making well-informed everyday financial decisions. Unfortunately, the data on financial education in the USA is not that great. Only 28 percent of the Americans are “financially healthy” as per a CFSI survey which involved more than five thousand citizens.
While that’s certainly not a large sample size and we shouldn’t generalize, the CFSI survey has several other “dire” statistics about finances such as high debt rates, low savings, less education, etc that talk a lot about the situation of financial literacy in our country. And it’s not encouraging. So, you don’t have to be in one of those categories of financially illiterate.
What is Basic Financial Literacy?
Financial Literacy is very straightforward and easy to define. It merely means you have a know-how of the basic financial concepts such as net worth, saving, inflation, liquidity, debt management, bull & bears, and risk tolerance, etc. Understanding these concepts allows you to make smarter and informed fiscal choices in your day-to-day life. Therefore, you become self-sufficient in your everyday financial decisions.
What Does It Mean To Be Financially Literate?
When you are financially literate, it means you have knowledge about the following key areas:
- Saving Money, paying bills, and setting up personal financial goals
- Loan basics (debt, personal loan, mortgages)
- Interest rates
- Opportunity Costs
- Credit cards, Debit cards, credit scores, credit history
- How different kinds of investments (stocks, bonds, 401Ks) work
How To Achieve Financial Literacy On Your Own
With the abundant information available online, you can learn any of these concepts pretty fast. You decide to become financially literate. But, depending on your age and available time, it may take a different amount of effort & time for different people. We recommend you go about at your own pace and don’t compare yourself to anyone else. Below are 8 simple ways to become financially literate.
1. Develop An Investor Mentality
Finally, the most important thing is breaking your consumer mentality. We are targeted with advertisements from every platform – whether it’s roadside signs, TV, or our mobile phones. Our media promotes a luxury lifestyle. Our social media makes us jealous of others. We focus too much on what others have. Over this educational journey, you need to break free of the consumer mentality and develop an investor mentality. Let your money go to work for you, instead of working for money and then wasting it on instant gratification.
2. Improve Your Basic Math Skills
Yeah, I know not everyone is a fan of Maths. But, if you want to be financially literate, you have to get your math on. You need to improve your basic maths skills by looking up basic formulas that can help with the better organization of your finances. Sure, spreadsheets and excel can make things easy for you, yet you should how the maths is working, and why is it showing a particular number.
3. Read Books
I can’t stress this point enough. Books are a key resource in your quest for financial literacy. Especially if you are coming from a no background in finance & investments, reading books becomes all the more important. Dedicate at least one to two hours every week to reading books. And not just ordinary books, you need to read on topics such as money management, investment, finance, etc.
4. Listen to Money Podcasts
Dedicating time to reading or searching for new content through different blogs can be a bit of a hassle. If you have a very busy personal or professional life, listening to money podcasts is the perfect solution to this problem. There are several great money blogs available online that you can listen to or from your work. You can also listen to podcasts while working. Just choose a podcast with a suitable time duration.
5. Read the Government Resources
While some of you may have a strong distrust of the government, there are actually some great official resources that can improve your financial education and how to manage your personal finances. For instance, there’s the official Treasury website that hosts useful information along with external resource links. You can also seek government financial assistance if a concept is unclear.
6. Read Articles From Magazine and Online Publications
While books are certainly more important for your education, magazines and online publications are usually more fun and less boring. Think about reading articles from online publications such as Fortune, Kiplinger, Financial Times, etc. Plus, there are hundreds of online freelance bloggers. You can follow their recent write-ups to stay up to date with what’s happening around the world and educate yourself in the process. Websites like MarketWatch, BiggerPockets, Investopedia, Student Loan Hero are also useful resources for financial literacy.
7. Enroll In A Financial Literacy Course
To brush up on your financial knowledge, you can also enroll in a financial literacy course. Whether it’s a class at an online finance school, college, or an education center, getting involved in a class will provide you more than enough knowledge. This is for those who feel like they need proper structure and environment to start learning. While most financial literacy courses are paid, some free online courses can be a great help too.
8. Use Tools in Managing Your Finances
Unlike what most people believe, managing your finances doesn’t have to be boring or difficult. Thanks to advancements in technology there are several tools available online that can help you become more proficient in managing your finances. Besides managing your finances, these tools also help you learn new concepts as they come with excellent learning centers, blogs, and software. Companies such as Blooom, YNAB, and Mint can educate you about financial literacy.
The Benefits of Financial Literacy
If you are still reading this article, you must have realized how powerful financial literacy can be. Hopefully, now you are piecing together all the benefits that come with it on a short and long-term basis. After all, you have all the tips you need to get on the right path. However, if you need further convincing, below are some benefits of financial literacy for your motivation.
More Confident In Your Finances
When you are financially literate, you gain control of the money, instead of letting it control you. It empowers you to feel much more confident in your managing your finances. Moreover, your entire attitude changes. The way you look, feel, and think about cash changes for the better.
Set Objectives and Goals For Yourself
When you have basic financial knowledge, you tend to set objectives and goals for yourself. Besides, you are then more focused on working towards achieving these objectives. Work excites and motivates you as you have an objective in mind rather than mindlessly working and spending your earnings.
Avoid Getting Into Debt
As I already posted earlier, debt is one of the biggest challenges our younger generation is facing today. With proper financial education, you start understanding how debt and interest rates work. This way you can avoid getting yourself into a debt trap. When your finances are properly managed you can save yourself thousands of dollars by creating proper saving plans.
You Can Identify Fraud
While this point isn’t often talked about in financial circles, the fact of the matter is, when you have basic financial education you can identify frauds. You become more knowledgeable about all the different kinds of identity thefts and fiscal scams in the finance industry. You can then tell the difference between a piece of genuine advice and a sham one.
Now that you have the breakdown of basic financial literacy, why not put your knowledge to the test? There are several online financial literacy tests you can try. Here’s one for your reference. Don’t worry, if your results aren’t that great. You can always use the above-mentioned tips to get back on track. With this knowledge, your finances will thank you in years to come.