As the adage goes, “Knowledge is power,” and it couldn’t be more true when it comes to your finances. Financial literacy, the understanding of various personal finance concepts, is a crucial skill everyone should master. It’s your armor against financial pitfalls and your ladder to financial growth and independence.
In this blog, we’ll explore some top resources that can elevate your understanding of money management, empower you to make smarter financial decisions, and ultimately lead you towards a more secure financial future.
What Is Financial Literacy? Why Does It Matter?
In broad terms, financial literacy refers to the financial knowledge that allows you to effectively manage your money. It includes proficiency in several skills and concepts like budgeting, understanding interest, credit management, the importance of saving, investment knowledge, financial risks and returns, and the ability to make strategic short-term and long-term financial decisions.
But why does financial literacy matter?
It can help you achieve your goals
It’s simple: The better you understand how to budget, invest, and save money, the easier it will be to create financial goals you may have thought unachievable — and develop a clear pathway to reach them. While you may not get there tomorrow, you’ll have the tools to build a solid foundation and steadily work towards those objectives.
It safeguards you against fraudulent schemes
From pyramid schemes to identity theft, there’s a long list of fraudulent activities that could put your hard-earned money at risk. In many cases, a financially literate person will have the knowledge and awareness to recognize and avoid these schemes before they can cause damage.
It prevents costly personal finance mistakes
Personal finance is riddled with complex rules and regulations, and even the smallest decisions can have the biggest impact. Financial literacy provides the understanding necessary to navigate these complexities, preventing costly mistakes and helping you maximize your financial potential.
It instills confidence
Perhaps above all else, financial literacy gives you confidence. With a wealth of knowledge under your belt, you can make informed financial decisions knowing you’re prepared should any unexpected outcomes arise.
What Do You Need to Know? How Can Financial Planners Help?
Financial literacy is a broad concept, and the things you “need” to know will ultimately depend on your unique circumstances. However, there’s a handful of key areas that will give you a foundation in financial literacy.
Budgeting: Understanding your income and expenses and being able to plan and control your spending.
Saving: Understanding how and when to set aside a portion of your income for future needs.
Investing: Understanding different investment vehicles and their associated risks and returns.
Debt: Understanding how loans and credit cards work, including interest rates, minimum payments, and the long-term cost of debt.
Taxes: Understanding how income tax works, including tax brackets, deductions, credits, and filing tax returns.
Retirement planning: Understanding concepts like pensions, 401(k) plans, IRAs, and the future cost of living.
A financial planner can do the heavy lifting in most of these areas, such as formulating a savings plan or putting together a diversified portfolio. They can also educate you on these topics and help boost your financial literacy over time.
However, it’s important to remember that your financial planner shouldn’t replace your own understanding of your finances. Ideally, you have enough financial literacy to fully understand your advisor’s advice and make informed decisions based on that advice.
Tools to Improve Your Financial Literacy
Are you ready to become more financially literate? Here are some top resources individuals can use to increase their understanding of personal finance, enhance their money management skills, and make more educated financial decisions.
Money Smart: This free resource provided by the Federal Deposit Insurance Corporation (FDIC) includes comprehensive programs to help people of all ages improve their financial literacy. Tools include lesson plans, webinars, games, podcasts, and more.
Investor.gov: This site, hosted by the U.S. Securities and Exchange Commission, offers a variety of free financial planning and investment tools, such as a compound interest calculator and market fund analyzer.
Investopedia: One of the world’s leading financial information resources, Investopedia is a financial media website that features articles, dictionaries, reviews, and more on a vast range of finance topics.
MyMoney.gov: From budget worksheets to planning checklists, this government website is full of free tools designed to help individuals make smarter financial decisions.
Financial Planning Apps: In today’s digital age, individuals have endless applications at their disposal that can help track their spending, create budgets, manage investments, and generally understand their financial situation better.
Certified Financial Planners: While not a “tool” in the usual sense, registered investment advisors and financial planners offer tailored, professional advice according to your unique financial standing, needs, and goals.
You’re not on your financial literacy journey alone. Our financial planners are ready to provide expert guidance and personalized advice along the way. Contact us today and let our comprehensive financial planning guide you on the path to financial success.
