What Is Financial Literacy And Why Is It Important?

What is Financial Literacy?

Financial literacy is the ability to understand and manage your finances properly all on your own. Can you balance a check book? Compare prices? Pay your bills? Get a job?

If you answered “yes”, then you maybe financially literate. Why only maybe? It’s because financial literacy is more than just being able to balance a check, pay your bills or compare prices. It will also require you to have the right skills to take advantage of financial opportunities that may come your way.

All over the world, different government, different groups, and different people are doing things that can help increase one’s financial literacy, but are they enough?

Teachers and professors in different schools are trying their best to teach their students how to read and write, and even solve mathematical equations, but they don’t teach them anything about how they can manage their money better.

Don’t you think you deserve to be educated about your finances?

Why Is Financial Literacy Important?

In the United States of America, young Americans are said to be less likely to be financial capable than older Americans according to a survey conducted my Financial Industry Regulatory Authority or FINRA. Despite the fact that many groups are trying to help increase the financial literacy of Americans like the Financial Literacy Group or the National Financial Educators Council, it’s still not that effective because only four states mandate that students must take a stand-alone personal finance class in high school.

These four states are:how to make money with money

  • Utah
  • Virginia
  • Missouri
  • Tennessee

If you live on those states, then you’re really fortunate. Now, what about the other 46 states?

Well, they do not require their students to take any finance class, and that’s maybe one of the reasons Americans are having a hard time handling their finances and achieving financial freedom.

People with low level of financial literacy tends to be more dependent on other people, so they are more likely to borrow more and accumulate less wealth in their life.

Financial ignorance can cause different problems to different individuals, people who are financial illiterate may have a harder time making on time payments, or they might think that paying only the minimum amount due monthly can help them pay off their debt. Those people may also have bad credit scores that can lessen the chances of them getting any assistance from creditors or lenders.

financial literacy and credit scores


It is never too early, or too late, to develop your financial literacy. A few decades ago, there were no debit cards or credit cards, and that is just a proof that money practices are constantly changing. You have to keep up with these changes for you to have a good financial life.

Enhancing your financial literacy can really be a do-it yourself task, but being financially literate is not only important for you, but also to your nation. If a nation has financial savvy citizens, then the country’s economy has higher chances of blossoming than other countries with less financially literate citizens.

You can learn things about personal finance with just a click of a button today. That’s an advantage you have now that others in the past did not, so start educating yourself NOW!

What do you think? Are you financially literate?

If you want to take a test to check it out, then the guys at the National Financial Educators Council (NFEC) can help you. Just take their Financial Literacy Test at their website or go there using this link: NFEC Financial Literacy Test

 Photo Credit: Ervins Strauhmanis

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  1. says

    I always feel sad when I hear that young Americans may not be as financially savvy as older generations. It’s especially important for our generation to have a solid grasp of personal finance because most of us will not have traditional pensions (and maybe not even Social Security?) to rely on. Financial literacy is an incredibly important topic!

  2. says

    Even if you are financially literate, you can still make dumb mistakes such as lifestyle inflation, YOLO living etc. However, having a handicap of being financially illiterate would certainly be a first handicap to overcome. Knowledge is power!!

  3. says

    Great topic to bring up! I know that I’m financially literate, but it wasn’t because I learned it in school. The students in those 4 states have something good going for them!

  4. says

    It’s really sad when you see people who genuinely aren’t even aware of the concept of ‘financial literacy’. But that’s why blogs and posts like this are fantastic to help reach people who aren’t normally exposed to this world, and help them see what’s possible. It really can be life changing stuff. Great work Mark!

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