Financial Literacy

Luckily, there is no need for a graduate degree to manage your money in a financially sound way. Just like reading comprehension, financial literacy has its levels. Some folks are barely literate, while others could explain in detail what a brokered CD is in an instant. It would greatly benefit your ability to manage your money if you were somewhat financially literate, and luckily it’s not that hard to do. Just like with reading, the way to improve your financial literacy is through practice, practice, and practice.

While finance is a highly specialized field with many of its professionals specializing in just one or two areas within it, the general population can become well-informed financial generalists with just a basic (self)-education. If you’re serious about improving your financial knowledge and thereby improving your financial situation, there are a few easy steps you can take.

Below we will dive deeper into the reasons why arming yourself with financial knowledge and skills is important, and we will explain multiple ways in which you can self-educate yourself to become financially literate, from the basics to a more in-depth understanding. Let’s dive in.

Why financial literacy is important

Becoming financially literate is crucial for a number of reasons. First and foremost, it helps you to make better financial decisions. Armed with the necessary financial knowledge and skills, you can take control of your financial life. Americans deem their finances to be the number 1 stressor in their lives, but there is no need for this if you become financially literate and take back control.

In addition to empowering you, understanding the foundations of personal finance allows you to create and maintain a budget. This helps you control your spending and can help you work toward both your short-term and long-term money goals. Furthermore, being financially literate helps you to understand the implications of borrowing money and the impact of debt on your overall financial health. Having to deal with undesirable debt is one of the ways in which most people lose control over their finances, and understanding the implications of borrowing money can help you make sound financial decisions.

The steps you can take to become financially literate

• Learning the basics

Your immediate concern for improving your financial knowledge should always be your own personal finances. Don’t get tempted by all fancy professional finance concepts: start with solidifying the foundation of key financial concepts. Start by learning about the difference between checking and savings accounts and how credit cards work. You’ll quickly encounter terms like interest rates, insurance, and basic investment vehicles if you start reading up on those. Having a basic understanding of these concepts has the potential to affect your financial future for the better.

We won’t take a deep dive into these topics in this article, but there are plenty of free online resources available to help you gather a working understanding of these basic money matters. Websites like Investopedia.com and Nerdwallet.com, and YouTube channels like Khan Academy – Personal Finance are reputable outlets that are able to help you kickstart your quest for financial literacy

• Understanding the fine print on your account statements- and why it’s important.

After you’ve learned about these fundamental concepts, you are most likely to understand most of the “fine print” on your account statements. Recent financial legislation has tightened up disclosure requirements for most financial institutions, bringing to light a wealth of information and advice that previously had been under wraps. Although it may be hard to understand, and the source certainly isn’t unbiased, the “fine print” that you find on your account statements and in the bowels of your bank’s website can actually contain sound explanations of things like compound interest, penalties and fees, and your legal options in the event of an error or dispute. If you come across an unfamiliar term or concept, simply refer back to one of the aforementioned online financial literacy resources, which should be bookmarked in your browser by now. Being able to understand the “fine print” on your account statements deepens your understanding of the basics of personal finance, as well as helping you know the rights that you have.

Before you open an account with a new bank or do any further business with your current institution, carefully read over this “fine print” information and take the time to compare it to similar disclaimers from other institutions. Over time, you’ll get a better sense of which financiers offer the best terms on their loan and deposit accounts. This is especially important before you take on a major long-term credit burden, like a new mortgage, car loan, or business loan, where even a small interest-rate difference can add up to thousands or even tens of thousands of dollars in extra debt over the years.

Additional Financial resources

Of course, financial institutions with a vested interest in keeping as much of your money as they can shouldn’t have the last word in your financial literacy education. The non-profit sector has a number of resources designed to improve easy-to-grasp understanding of money issues, the most prominent of these being a public-private partnership known as the Financial Literacy and Education Commission.

Established in 2003 as part of the Fair and Accurate Credit Transactions Act, the Commission consists of nearly two dozen federal agencies and enlists the help of numerous private companies, community colleges, and local school districts to promote financial education at multiple points of contact. If you’re looking to improve your financial IQ without getting into the weeds of fine print, the Commission’s public portal at MyMoney.gov has a raft of unbiased, easy-to-understand information as well as free financial-planning tools that many for-profit institutions might charge you to use.

Making a budget is one of the main ways in which you can control your own financial situation, and the resources at MyMoney.gov are an excellent way to get you started with making your own financial planning. Meanwhile, the National Credit Union Association, a component organization of the FLEC, offers information tailored to current and potential credit union account holders at NCUA.gov.

An even more in-depth overview

If you’re looking for an even more in-depth overview of personal money matters, the self-help section at your local library positively brims with books on financial literacy. Once you’ve mastered the basics of personal finance, you may want to graduate here to learn more about specific sub-fields or find procedural texts on retirement planning, investment-related tax issues, and obtaining and managing credit facilities like loans and business lines of credit.

Then again, it may be worth it to invest in a small financial library of your own. Money management is the bread and butter of the popular “For Dummies” series of self-help books, and the brand offers all manner of finance-related texts for sale at Dummies.com. With surprisingly specific titles like Personal Finance In Your 20s For Dummies and Asset Allocation For Dummies, chances are good that you’ll find a book on your specific query there.

Apart from the “For Dummies” series, there are a number of personal finance classics-to-be out there still dominating the charts of the NY Times bestseller list. Titles like “The Psychology of Money” by Morgan Housel, “I Will Teach You To Be Rich” by Ramit Sethi, and “The Total Money Makeover” by Dave Ramsey can help you build out your understanding of your personal finances and help you control your money. These easy-to-understand books go into detail about the most important concepts in personal finance, from creating a budget to safely managing your credit card to investing in index funds.

Financial literacy is a matter of security

These days, the difference between legitimate credit products and outright scams can be hard to grasp. Armed with your new-found financial knowledge, you’ll see right through these scams and avoid the mistakes of those who came before you.

A prime example of this are deceptively cheap mortgages. If something seems too good to be true, it often is. Even when the interest rate on a mortgage seems to be low, many mortgages use sleight-of-hand to dramatically increase their cost in the out years. For instance, balloon mortgages demand an enormous lump-sum payment upon maturity in addition to the interest they’ve accrued over their term and often can’t be refinanced, while adjustable-rate mortgages’ initially low-interest charges invariably increase as time goes on.

Sure, whether these confusing home loans can be considered deceptive is a matter of interpretation, but they’re certainly sneaky. Payday loans, on the other hand, can be downright destructive, with annualized interest rates of 300 percent or more… Being financially literate gives you the power to not fall for these scams.

The best way both to avoid the temptation or need to take out risky loans is to put the store of financial knowledge that you’ve accumulated to good use and improve your credit score. Paying off your credit card debt and bringing the card back to life takes time, but the payoff can be immense as you’ll save money on everything from car insurance to flights to loans. Set about improving your financial literacy today and look forward to a future filled with smart financial decisions and less finance-related stress.