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Take Control of Your Money: A Guide to Financial Literacy I

 

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Credit: Carlos Muza

Financial literacy is the ability to understand and effectively use various financial skills, including personal financial management, budgeting, and investing. It provides the essential foundation for a smart relationship with money and promotes a lifelong journey of learning about the financial aspects of life. Financial literacy encompasses a range of competencies, including understanding financial principles such as earning, saving, investing, and borrowing, as well as comprehending concepts like interest rates, inflation, and financial risk management.


Why Financial Literacy Is Important

Financial literacy is crucial because it empowers individuals to make informed and effective decisions with their financial resources. Achieving financial literacy is especially important in today’s society due to facets of life such as student loans, mortgages, credit cards, investments, and health insurance.


Who Needs Financial Literacy?

Anyone who wants to be financially successful and gain financial freedom should aim to be financially literate. Financial literacy is important regardless of age, gender, income, or educational or social background. 


Key Principles of Financial Literacy

There are five broad principles of financial literacy that can be applied to short-term, medium-term, or long-term financial goals.


  1. Earning income: Creating a steady and stable source of income is essential for starting your financial journey.
  2. Saving: Savings are the money not spent and available for future use, which can be accelerated by keeping track of expenses.
  3. Budgeting: In budgeting, there are four main uses for money: spending, investing, saving, and giving away. Popular personal budgeting methods include the 50/20/30 and 70/20/10 rules, which divide after-tax income into categories for needs, wants, savings, and debt reduction.
  4. Borrowing: Understanding borrowing involves recognizing favorable loan terms and managing debt responsibly.
  5. Protecting Money: Financial literacy can help protect individuals from becoming victims of financial fraud.


By improving your financial literacy, you can handle your personal finances responsibly and protect the well-being of your financial future.


Sources

  1. Basiony, Noha. “A Simple Introduction to Financial Literacy.” ProfileTree Web Design and Digital Marketing, 4 July 2024, profiletree.com/financial-literacy. 
  2. Batchelor, Katie. “What Is Financial Literacy? An Introduction, Risks, Adoption, and Key Factors. - Dads in Business.” Dads in Business, 6 May 2024, dadsinbusiness.co.uk/blog/what-is-financial-literacy. 
  3. Fernando, Jason. “Financial Literacy: What It Is, and Why It Is so Important to Teach Teens.” Investopedia, 29 June 2024, www.investopedia.com/terms/f/financial-literacy.asp.
  4. Gcu. “What Is Financial Literacy and Why Is It Important?” GCU, 23 Sept. 2024, www.gcu.edu/blog/business-management/what-financial-literacy-why-important. 
  5. Kapoor, Vanshika. “Basics of Financial Literacy : All You Need to Know - iPleaders.” iPleaders, 15 Aug. 2024, blog.ipleaders.in/basics-of-financial-literacy-all-you-need-to-know. Team, 
  6. Cfi. “Financial Literacy.” Corporate Finance Institute, 16 Sept. 2024, corporatefinanceinstitute.com/resources/wealth-management/financial-literacy.
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