Originally Posted On: https://www.iquanti.com/
According to the Financial Industry Regulatory Authority, people with higher financial literacy are more likely to make ends meet. Those with higher financial literacy tend to spend less than they earn, set aside money for emergencies, and plan for their long-term goals. This is because financial literacy empowers people to understand and take control of their finances. It helps them stabilize their finances and make better decisions while reducing stress and anxiety around money. With that in mind, this article will explain what financial literacy is and dive into five of its top benefits.
What is financial literacy?
Financial literacy represents your knowledge of basic personal financial principles. It also consists of your ability to use various skills and tactics to manage your personal finances.
Becoming financially literate empowers people to improve their finances and maximize their money. It can involve making a budget, creating a debt payoff plan, setting and saving for retirement goals, and learning the basics of investing in the markets.
Benefits of financial literacy
Here are some benefits of improving your financial literacy:
1. Helps you achieve financial stability
Financial literacy improves your financial stability. You learn how to spend less than you make and rein in unnecessary spending, ensuring you don’t put yourself into debt or live paycheck-to-paycheck. This allows you to establish financial stability, which lays the groundwork for building toward financial goals and building wealth.
2. Helps you make better financial decisions
Another huge benefit of financial literacy is that it helps you make better decisions. For example, a substantial part of financial literacy is knowing the types of financial products out there. If you’re financially literate, you’ll know the benefits and drawbacks of numerous bank account types and the importance of comparing multiple banks before moving forward with one.
3. Assists with reaching financial goals
Financial literacy helps you both understand the types of financial goals and what steps are involved in reaching them. For example, retirement is one of the biggest goals among many. Many people save a substantial amount of money across several accounts and assets, a process that takes time and planning.
Financial literacy helps you understand how much you need to save and invest each month toward this goal. It also helps you select where you will put that money to maximize potential return.
4. Helps you prepare for emergencies
Emergency preparedness is a top financial literacy topic. Knowing how to get ready for and manage a financial emergency reduces the damage and helps you get back on your feet faster.
For example, getting laid off can significantly impact your finances. However, financial literacy helps you prepare for that situation. You can ensure you have enough set aside for emergencies — usually three to six months of living expenses — and know how long you can go without employment.
5. Reduces financial stress
The more you know about your finances, the less stressed you feel about them. As a result, you feel more confident in your day-to-day life. You know whether you’re on track toward your goals, reducing your anxiety about the future. This, in turn, can enhance the other benefits of financial literacy. For example, you may be better able to manage your spending and stabilize your finances when you aren’t stressed about where you’re spending and investing your money.
Similarly, you’re informed about financial products such as mortgages, credit cards, and bank accounts. You know the difference between what does and doesn’t fit your goals and circumstances.
The bottom line
Managing and improving your finances is a lifelong journey. But becoming financially literate makes that journey a positive one. By becoming financially literate, you can stabilize your finances, make more informed financial decisions, and work toward financial goals more efficiently. Plus, you’ll know how to prepare for and weather emergencies. All of these reduce your financial stress, creating a positive feedback loop that makes improving your finances easier. Ultimately, financial literacy empowers you to take your money into your own hands and sets the stage for a bright financial future