What is financial literacy?

Just like you had to practice over and over again to develop your reading literacy as a kid, financial literacy is being able to understand and make better personal finance decisions that will help you achieve financial wellness.


💡 Key takeaways

  • Financial literacy refers to understanding multiple important financial concepts and skills.
  • A strong foundation in financial literacy will help you throughout your life when making financial goals like saving for education or retirement, purchasing a house, using debt responsibly, and running a business.
  • You never stop building your financial literacy! There is always more to learn.

Why is financial literacy so important?

In recent decades, access to financial services and lines of credit (borring money) has become more accessible to everyday people, especially for young people. This includes products and services like credit cards, mortgages, car loans, and student loans. At the same time, building a strong credit history as a young person has become increasingly more important to prepare for your future.

While it is universally understood that learning about personal finance at a young age is incredibly important to develop your financial literacy, there is an alarming lack of personal finance across the United States. Even in adults, the Financial Industry Regulation Authority estimates that 66% of Americans are considered financially illiterate[1].

Lacking financial literacy can lead to many struggles related to your financial success. This could mean finding yourself in an unsustainable amount of debt, often at high interest rates, making poor purchasing decisions, or failing to prepare for emergencies. In turn, this can lead to a poor credit score, bankruptcy, or even housing foreclosure.



Sources

We use primary sources to support our content. This includes government data, white papers, interviews with experts, and other research work.

  1. Financial Industry Regulatory Authority. "U.S. Survey Data at a Glance." Accessed March 8, 2021.

This definition was last updated on June 23, 2021.

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