Are you savvy with your money? Are you anxious when managing your income and savings? Or are you ever confused about what to do in certain money-related situations? Not all of us were taught by our caregivers and teachers about these kinds of money matters. They are, however, important for a successful and independent life. All these questions are relevant to the idea of financial literacy.
To be financially literate means that you have the skills to effectively manage your finances, grow your savings pot, and prosper. In order to function in a financially literate manner, you need to have basic knowledge on a variety of money- and finance-related topics as well as a strong sense of personal responsibility.
Key areas of financial literacy
Budgeting: You know where your money goes each month and what percentage is used for various categories such as housing, food, vehicles, and recreation. If you exceed your budget, you can analyze what is going on and what you need to change.
Spending: You are neither a cheapskate nor an out-of-control spender. Rather, you use your head, not your emotions, and take care of your needs before your wants.
Borrowing: With the exception of mortgage borrowing, you prefer not to take on debt. You try to pay for your purchases with cash or pay off your credit cards in full at the end of the month.
Saving: You have set aside funds for a major new expense or an emergency. You have got a few months’ living expenses saved up, or if you don’t, you are actively addressing that.
Investing: You understand that saving and investing are not the same thing. You place a certain percentage of your monthly income on a regular basis into investments for long-term goals and retirement. You have a layman’s knowledge of mutual funds and other long-term investment vehicles.
Signs that you may be financially illiterate
Review the following points and see if any apply to you. Even if they do, it may not mean that your financial intelligence is low. Nevertheless, if some of these traits apply to you, it may be necessary to take stock of your relationship with money.
• Do you buy lottery tickets but don’t invest or save?
• Do you find yourself with no money before the end of the month?
• Do you believe that saving and investing are two different things?
• Can you pay your bills on time?
• Do you have a budget plan, at least mentally if not on paper?
• Do you eat out often at expensive restaurants, even if you cannot afford it?
• Do you feel it is necessary to drive an expensive, fancy car, even if you have to finance it over numerous years at high rates?
So, how do you assess your financial literacy now? It’s OK if you feel that you are in need of a tune-up. Many of us are. No worries, there are many good books, websites, and other forms of savvy financial information available. The key is to educate yourself and keep learning in those areas you lack and put your new-found knowledge into practice.