What is financial literacy?
April is National Financial Literacy Month, so let's talk about it! Financial literacy is the knowledge and skills you need to make sound financial decisions. In other words, it's about knowing what factors affect your money and being able to analyze them so that you can take control of your finances.
What is financial literacy?
Financial literacy is the ability to effectively use financial skills.This includes personal financial management, investing, and budgeting. It's not just about having the right knowledge, but also having the confidence to effectively use it. Understanding your finances can help you achieve greater personal and financial success.
No matter how old you are, you can educate and empower yourself to be confident with your finances. This means learning budgeting, setting goals, debt management, and other techniques so that when life throws a curveball--like unexpected medical bills or car repairs--you know what to do next.
Understanding how your finances work
Financial literacy is not just a set of facts and figures. It's about understanding how money works in your life, so that you can make informed decisions about your finances. Even if you weren't taught how to manage your finances properly, you can take the initiative to educate yourself!
Financial literacy is also about having confidence with money management skills such as budgeting, saving for retirement and paying off debt -- all things we'll cover later on.
Use your finances to plan for the future
You may have heard that financial literacy is important for building wealth, but did you know that it's also a crucial skill for managing debt?
The average American has a debt balance of $96,000 (Bankrate) so if you don't know how to manage your debt you might be in trouble.
How to manage debt more responsibly:
- Develop a budget so you can track your expenses.
- Don't take on more debt.
- Keep track of your credit score as your debt-to-income ratio changes.
- Pay off the highest interest debt first.
- Always pay your bills in full and on time.
Financial literacy allows you to make informed decisions
Financial literacy isn't just about having the right knowledge; it's also about having the confidence to effectively use that knowledge.
Here are the six components of financial literacy:
- Earning
- Spending
- Saving
- Investing
- Borrowing
- Protecting yourself against fraud, scams, or identity theft
Take the initiative to help yourself achieve financial freedom
Financial literacy is one of the most important skills to have in today's world, and it's something that everyone should try to improve upon. It doesn't matter if you're just starting out or have been managing money for years--effective financial planning requires knowledge about how different aspects of your life work together, as well as confidence in making good decisions when faced with challenging situations. The more confident you feel about managing your finances, the better off you and your family will be.
To learn more about how you can become financially stable and independent, register for a homebuyer education course today.
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