6 ways to improve your financial literacy

Financial literacy refers to the knowledge, skills and understanding of financial concepts and practices that enable individuals to make informed and effective financial decisions. It involves the ability to manage personal finances, make sound investment choices, budget wisely and understand various financial products and services. Taking steps to improve your financial literacy is crucial for individuals to achieve financial well-being, plan for the future and navigate the complexities of the financial world.

Studies and surveys consistently show that a substantial portion of the U.S. population lacks basic financial knowledge. According to the 2018 National Financial Capability Study conducted by the FINRA Investor Education Foundation, only 34% of U.S. adults were able to answer four out of five basic financial literacy questions correctly.¹ These questions covered topics such as compound interest, inflation, diversification and investment risk.

It's important to note that financial literacy levels can vary depending on demographic factors such as age, education level, income and ethnicity.

What areas are covered in financial literacy?

Financial literacy covers a wide range of topics and areas related to managing personal finances and making informed financial decisions. Some of the key areas covered in financial literacy include:

• Budgeting: Creating and maintaining a budget helps you to track income, expenses and savings. Understanding how to allocate money effectively to meet financial goals is important in financial literacy.
   
• Saving and Investing: Understanding the importance of saving money regularly and the different investment options available, such as stocks, bonds, mutual funds and retirement accounts.
   
• Debt Management: Understanding the implications of taking on debt and managing loans and credit cards responsibly.
   
• Retirement Planning: Understanding retirement accounts (401(k), IRA, etc.) and planning for a secure financial future after retirement.
   
• Taxes: Knowing the basics of income taxes, deductions, credits and how to file tax returns.
   
• Insurance: Understanding different types of insurance (health, life, auto, etc.) and their importance in risk management.
   
• Real Estate and Mortgages: Understanding the home-buying process, mortgages and real estate investment considerations.
   
• Investment Risks and Diversification: Understanding the risks associated with investing and the importance of diversification in a well-balanced investment portfolio.
   
• Financial Goal Setting: Identifying and setting short-term and long-term financial goals and creating a plan to achieve them.
   
• Inflation and Interest Rates: Understanding the impact of inflation and interest rates on purchasing power and savings.
   
• Banking and Financial Institutions: Understanding how banks and credit unions work, managing bank accounts and using financial services effectively.
   
• Social Security and Government Benefits: Understanding government benefit programs, such as Social Security, and how they fit into retirement planning.

Six ways to improve your financial literacy

Improving your financial literacy is a valuable step towards making informed financial decisions and achieving your financial goals. Here are six ways to improve your financial literacy:

1. Read books and educational material

There are numerous books, articles and online resources dedicated to personal finance and financial literacy. Look for books written by reputable financial experts that cover topics like budgeting, saving, investing, and managing debt. Regularly reading these materials will expand your knowledge and understanding of financial concepts.

2. Take online courses

Many online platforms offer free or paid courses on personal finance and investing. These courses are designed to cater to different skill levels, from beginners to more advanced learners. Engaging in structured courses can provide a comprehensive understanding of various financial topics.

3. Follow financial blogs and news

Subscribe to financial blogs and websites that provide insights and updates on money management, investment trends, and economic developments. Staying informed about the financial world will help you make better financial decisions.

4.  Attend workshops and seminars

Look for local workshops or seminars on personal finance and investing. Many financial institutions and community organizations offer such events to help people improve their financial literacy. Attending these sessions can provide valuable tips and guidance from financial experts.

5. Use financial apps and tools

Download financial apps that help you budget, track expenses and monitor your investments. These apps can simplify money management and make it easier to stay on top of your finances.

6. Seek advice from professionals

If you have specific financial goals or complex financial situations, consider consulting with a financial advisor. A qualified advisor can provide personalized guidance tailored to your needs, help you develop a financial plan and answer any questions you have about investing and financial management.

Closing

Having good financial literacy empowers individuals to make informed decisions about money, avoid financial pitfalls and work toward their financial goals. It also contributes to greater financial security, reduced financial stress, and the ability to handle unexpected financial challenges effectively. It is an essential life skill that should be cultivated and continuously improved upon throughout one's life. By educating oneself and seeking financial guidance when needed, individuals can better manage their finances, build wealth and achieve long-term financial well-being.

Remember, improving financial literacy is an ongoing process, and consistency is key. Don't be afraid to start small and gradually build your understanding of different financial concepts. The more you learn and apply this knowledge to your financial decisions, the better equipped you'll be to secure your financial future.

This article was written by Hysha Burgess from Everything Finance and was legally licensed through the DiveMarketplace by Industry Dive. Please direct all licensing questions to legal@industrydive.com.

1. "2018 National Financial Capability Study." FINRA, June 2019.