We usually either take it for granted or don’t even think about it. And yet financial literacy is arguably one of the most important life skills one can possess. Why? Because knowing how to manage your money can help you feel secure financially, which can mean less anxiety and worry. Plus, when you have a good handle on your finances, it’s easier to make smart decisions so you end up in a better place financially over time. In this article, we'll discuss why financial literacy matters and some steps one can potentially take to improve themselves in this area.
Why Financial Literacy is Important
Being financially literate means that one has a basic understanding of how money works and of the different ways of managing it. This knowledge can help them make informed decisions about their financial future. For instance, being able to accurately read your credit score, identify appropriate investments, calculate your taxes, and develop realistic budgets may better position you to take charge of your finances. Financial literacy helps us make educated decisions with our hard-earned money that can have long-term positive impacts.
3 Steps You Can Take to Improve Your Financial Literacy
Strengthening this skill doesn’t have to be overly time-consuming or difficult. See below for three ways people frequently go about becoming more financially literate:
- Learn the basics of money and financial concepts
To start, it’s usually helpful to establish a better understanding of basic financial concepts. One might consider building their knowledge in the areas of saving, investing, debt, building credit, and budgeting. While this might initially sound intimidating, to be financially literate, it’s critical to learn about these concepts – the building blocks of personal finance.
There are many ways one can go about learning more about these topics. As you likely know, the internet is full of both free and paid financial information and courses. To grow their knowledge, many people choose to subscribe to financial newsletters, listen to financial podcasts, or read books about personal finance. It’s also possible to get a better grasp of many of these concepts through social media or by talking to finance professionals.
- Set financial goals
Another potential step on one’s journey to improving their financial literacy might be to begin setting financial goals. Ask yourself, what do you want to achieve financially? Do you want to save for a downpayment on a house, for instance, or do you want to retire early? After someone sets their financial goals, they usually start developing a plan to achieve them.
- Develop a budget
Finally, when one creates a realistic budget and strives to stick to it, this can also help them improve their financial literacy. A budget is a tool that helps people track their income and expenses so they can see where their money is going. It can also assist them with making informed decisions about how to spend their money. When creating a budget, it’s generally recommended to take into account both your short- and long-term financial goals.
All in all, taking steps to boost one’s financial literacy will likely be a wise investment in the end. Doing so may put you on track to set impactful goals, better manage your money, and improve your overall financial situation. Beyond that, establishing a deeper understanding of your financial picture and how to manage it may help alleviate worry so you feel more secure when you think about your financial future. It’s never too late to build this invaluable skill.