Literacy brings empowerment to populations around the globe, and computer literacy enables people to effectively engage with modern technology in our increasingly digital world. These ideas are well recognized as foundational. Financial literacy, however, is lacking in the education system, and yet is a fundamental need for financial success in adult life.
Here’s a look at what it means to be financially literate, and the concepts you should learn on your journey toward financial literacy.
Financial Literacy Definition
Financial literacy is defined as “the ability to understand and effectively use various financial skills, including personal financial management, budgeting, and investing.” It’s a broad term that encompasses a wide array of financial know-how. Ultimately, though, financial literacy gives you the ability to manage your finances so that you can prioritize your needs and pursue your wants.
American businessman P. T. Barnum said, “Money is a terrible master but an excellent servant.” Learn to be financially literate and make your money serve you.
How to Be Financially Literate
Financial literacy involves an extensive breadth of financial knowledge that can feel daunting. But the good news is that there are plenty of resources to help you. Look to your bank, your employer, and trusted nonprofits, agencies, and other organizations for educational resources or counseling. They are all great places to help you learn financial literacy. Start with basic understanding and advice before moving on to more complicated topics.
The best areas of financial knowledge to tackle first are fundamental concepts like the following:
- Checking vs savings accounts: These two types of transactional accounts are designed with different purposes in mind. Checking accounts are more of a “revolving door,” where frequent withdrawals and deposits are expected. It’s a place to store money you plan to spend.
A savings account, on the other hand, is where you’ll store money to save, whether it’s for a specific purchase or an emergency fund. As such, savings accounts usually have withdrawal limits, as opposed to checking accounts which do not. Finally, money in your savings account will earn interest while most checking accounts pay little or no interest.
- Credit and debit: The main difference between debit and credit is where the money comes from. Debit cards draw from your checking account and spend your own money, while credit cards borrow money that must be paid back, possibly with interest. Both methods of payment have their own advantages and disadvantages, so it’s important to educate yourself. Research both and decide which one—or which combination—will work best for you.
- Budgeting: One of the first things you’ll learn about when developing financial literacy is budgeting. It’s a crucial tool that allows you to keep track of your income and expenses and take charge of where your money is going. Develop and adjust your budget to help you prioritize necessities, pay off debt, and save for emergencies and life goals.
- Debt: Whether you’ve accumulated debt from student loans, medical bills, or anything else, familiarizing yourself with debt repayment strategies can help make your burden manageable.
- Saving money: Knowing how to save money is an impactful part of financial literacy. Lay funds aside to help you meet your goals and dreams, and make sure you have the financial resources you need when life gets messy.
Financial Literacy—Investing and Passive Income
Once you have a solid foundation, broaden your financial knowledge by delving into more complicated strategies like investment, whereby you invest your money now to receive greater returns in the future. There are a plethora of ways to invest, from stocks to individual retirement accounts (IRAs) to annuities.
You can also invest in developing streams of passive income. Passive income is “a steady flow of money that you earn on a regular basis from work that you have previously completed or that requires little daily effort from you.” It’s a great way to strengthen yourself financially, and can help provide you with more flexibility. You can earn income passively by starting a blog, writing an ebook, buying rental property, or purchasing UA Abundance Packages.
Our UA Abundance Packages are similar to annuities—you pay a lump sum up front, then begin to receive payments in the future. They also offer additional benefits, like contributing funds to UA Legacy Grants to help individual grant recipients, charities, and more.
As you navigate the realm of finance and grow your knowledge base, remember that financial literacy is an ongoing journey. Keep learning, adjusting, and improving!
Becoming financially literate is important for creating a life of security, independence, and success. Your financial understanding and skills will help you to have the means to support yourself when things go wrong. And you’ll have the resources to pursue the richest things in life—whatever that means for you.
At UA Legacy Grants, our mission is to empower over 1 million individuals with the tools needed to increase financial literacy and the ability to create financial abundance for their families. Our UA Abundance Packages help individuals and organizations to reach their financial goals, like making college more affordable for students or creating passive income in retirement, through our Purchase With Purpose program.
Between grant donors and contributions from our “for profit” sister company, Universal Achievers, we are able to provide granted financial wellness packages to those in need. Find out how you can learn more about what we do or purchase your own UA Abundance Package today!