Why Financial Literacy Matters – How to Master Your Money
Joy Wallet is advertiser-supported: we may earn compensation from the products and offers mentioned in this article. However, any expressed opinions are our own and aren't influenced by compensation. To read our full disclosure, click here.
Imagine sitting down to answer some simple questions about your finances—things like how interest rates work or what a good credit score is—and realizing you can’t get the answers right. That’s the reality for many Americans today.
The 2023 Financial Industry Regulatory Authority (FINRA) Investor Education Foundation Survey uncovered a surprising truth: Even though basic financial literacy is on the rise, nearly 60 percent of people still struggle with fundamental financial questions.
It’s like knowing how to budget but not understanding the nuances of investing or retirement planning. This gap in knowledge shows that while we’ve made progress, there’s still a long way to go to truly master our financial future.
In fact, a recent study revealed that because of illiteracy in finance, Americans lose an average of just over $1,800 per year.
The Global Financial Literacy Survey also found the U.S. ranks 14th in the world for financial literacy. While 57 percent of Americas are literate, it’s well below those of top nations, including the 71 percent financial literacy rate of Danes, Swedes and Nordic people. It revealed the nations leading the way have education systems that push financial education.
But on a positive note, 73 percent of teens want to further their personal finance education, and you, dear reader, are reading an article about financial literacy and are taking Joy Wallet’s Financial Fitness Test.
You’re already taking the first step in moving toward financial literacy!
In this article
Financial fitness by generation
The way we handle our finances has evolved dramatically over the years, with each generation bringing its own set of experiences and strategies.
For the Silent Generation, born between 1928 and 1945, life was marked by the trials of the Great Depression and the prosperity that followed in World War II. Their approach to money was grounded in saving every penny, living frugally, and working hard. They were true believers in the value of a strong work ethic and cautious financial management.
Baby Boomers, who were born between 1946 and 1964, saw a world transformed by post-war economic growth. This period saw the rise of consumerism and credit, with pensions and homeownership becoming central to their financial plans. Their financial practices mirrored a shift towards enjoying the fruits of a booming economy.
Generation X, born between 1965 and 1980, faced a changing landscape with more dual-income households and rising personal debt, including credit cards and student loans. Often skeptical of traditional financial institutions, they pioneered DIY financial planning and took a more hands-on approach to managing their money.
Millennials, born between 1981 and 1996, navigated the challenges brought by the 2008 financial crisis, which hit their financial stability hard. They’ve had to deal with burdens like student debt and high housing costs. However, they’re also leading the charge in embracing financial technology and seeking out alternative investment opportunities.
Finally, Generation Z, born between 1997 and 2012, is carving out a new path with their early adoption of digital financial tools and a proactive stance on saving and investing. Their financial outlook is influenced by economic uncertainties and the pervasive impact of social media on their financial choices.
How Do You Stack Up?
- Answer a few simple questions
- Discover personalized stories & offers
- Takes only a few minutes
- Tailored results just for you
- 100% safe and secure
Practical ways to boost your financial literacy
Improving your financial literacy doesn’t have to be a daunting task. With a few simple steps, you can enhance your understanding and take control of your financial future.
1. Start with the basics
First things first – get a solid grip on the basics of personal finance. Understanding key concepts like budgeting, saving, and managing debt is crucial. For in-depth guidance and practical advice, follow Joy Wallet’s navigation to find what you need, from straightforward budgeting tips to strategies for managing debt effectively.
2. Set financial goals
Setting clear, achievable financial goals can keep you motivated and focuses. Whether it’s saving for a vacation, paying off debt, or planning for retirement, having specific goals helps you understand why financial literacy is important. Create a plan that outlines steps to achieve these goals and regularly review your progress. Take advantage of Joy Wallet’s calculators, which can help you budget effectively, track your savings, and manage your debt. These tools offer practical assistance in mapping out your financial path and measuring your success along the way.
3. Learn from real-life experiences
Sometimes, the best way to learn is through experience. Try managing your own budget or investing in a small way to get a feel for financial planning. If you make mistakes, treat them as learning opportunities. Speaking with a financial advisor can also offer personalized advice and guidance based on your unique situation. And, read Joy Wallet’s inspiring interviews for real-life solutions.
4. Stay informed and engaged
Financial literacy isn’t a one-time lesson; it’s an ongoing journey. Stay updated with financial news and trends to keep your knowledge current. Engaging with online communities or local financial literacy workshops can also provide support and insights from others on similar financial journeys.
- Commission free stock trading.
- No account minimum.
- Trade stocks, options, ETFs, and more.
- First stock free.
The pillars of financial literacy
Understanding the core pillars of financial literacy can set you on the path to financial success and security.
Budgeting
Budgeting is like drawing a map for your money. It involves creating a plan to manage your income and expenses and live within your means while allocating funds to your prioritizes. By tracking where your money goes, you can make adjustments and avoid overspending. A well-crafted budget helps you understand your spending habits, identify areas for improvement, and set yourself up for financial stability.
Saving
Saving is all about putting money aside for future needs and emergencies. It’s not just about setting aside a portion of your income but about developing a habit of regularly contributing to your savings. Having a financial cushion can protect you from unexpected expenses, reduce stress, and provide you with the flexibility to handle life’s surprises. Aim to build an emergency fund that covers at least three to six months of living expenses.
Growing your wealth
Investing is where your money starts working for you. It involves putting your funds into assets like stocks, bonds, or mutual funds with the goal of growing your wealth over time. Unlike saving, which is more about safety and liquidity, investing carries risks but also offers the potential for higher returns.
Debt management
Debt management is crucial for maintaining financial health and avoiding excessive financial strain. It involves understanding how to handle and repay borrowed money responsibly. This means knowing the terms of your loans, making timely payments, and avoiding high-interest debt that can spiral out of control.
Retirement planning
Retirement planning is all about preparing financially for your future when you stop working. The earlier you start saving for retirement, the more time your money, in retirement accounts like 401(k)s or IRAs, has to grow. Creating a retirement plan ensures you’ll have the resources you need to enjoy your later years without financial worries.
- Commission free stock trading.
- No account minimum.
- Trade stocks, options, ETFs, and more.
- First stock free.
FAQs
Why is financial literacy important?
Financial literacy is crucial because it empowers you to make sound financial decisions, avoid common pitfalls, and achieve your financial goals.
How often should I review my financial plan?
You should review your plan at least annually or whenever there is a significant life change (such as a new job, marriage, or major purchase). Regular reviews help you stay on track with your goals and make adjustments as needed.
What is the best way to manage debt?
Start by paying off high-interest debt first and make consistent payments on all your debts. Consider consolidating or refinancing your debt if it helps reduce your interest rate. Avoid taking on new debt and create a plan to stay debt-free.
How can I start investing if I’m new to it?
Start by educating yourself about different investment options like stocks, bonds, and mutual funds. Begin with low-risk investments and consider using robo-advisors or consulting with a financial advisor for guidance. Make sure you diversify your investments to spread risk.
The bottom line
Getting a handle on financial literacy is more important than ever. While we’re making progress, many Americans still find themselves struggling with key financial concepts, which can lead to losing money each year. But don’t worry—there’s plenty you can do to improve your financial know-how. Start by mastering the basics, setting achievable goals, and taking advantage of helpful resources. With a little effort and the right tools, you can build a stronger financial future and avoid those costly pitfalls.
Joy Wallet is an independent publisher and comparison service, not an investment advisor, financial advisor, loan broker, insurance producer, or insurance broker. Its articles, interactive tools and other content are provided to you for free, as self-help tools and for informational purposes only. They are not intended to provide investment advice. Joy Wallet does not and cannot guarantee the accuracy or applicability of any information in regard to your individual circumstances. We encourage you to seek personalized advice from qualified professionals regarding specific investment issues. Featured estimates are based on past market performance, and past performance is not a guarantee of future performance.
Our site doesn’t feature every company or financial product available on the market. We are compensated by our partners, which may influence which products we review and write about (and where those products appear on our site), but it in no way affects our recommendations or advice. Our editorials are grounded on independent research. Our partners cannot pay us to guarantee favorable reviews of their products or services.
We value your privacy. We work with trusted partners to provide relevant advertising based on information about your use of Joy Wallet’s and third-party websites and applications. This includes, but is not limited to, sharing information about your web browsing activities with Meta (Facebook) and Google. All of the web browsing information that is shared is anonymized. To learn more, click on our Privacy Policy link.
Images appearing across JoyWallet are courtesy of shutterstock.com.
Writer
Lissa Poirot is an award-winning journalist and editor with a focus on finance, travel and health. Her work has appeared online and in print, and she has often been cited as a source on both. She currently resides in Pennsylvania.
Share this article
