Financial Literacy Definition
The National Financial Educators Council defines financial literacy as: “possessing the skills and knowledge on financial matters to confidently take effective action that best fulfills an individual’s personal, family and global community goals.”
Several other national organizations have created their own definition. Listed below are several financial literacy definitions that do vary but also do share commonalities.
The Government Accountability Office (GAO) defines financial literacy as: “the ability to make informed judgments and to take effective actions regarding the current and future use and management of money. It includes the ability to understand financial choices, plan for the future, spend wisely, and manage the challenges associated with life events such as a job loss, saving for retirement, or paying for a child’s education.”
Jump$tart has this financial literacy definition: “Personal finance describes the principles and methods that individuals use to acquire and manage income and assets.” Financial literacy is the ability to use knowledge and skills to manage one’s financial resources effectively for lifetime financial security. Financial literacy is not an absolute state; it is a continuum of abilities that is subject to variables such as age, family, culture, and residence. Financial literacy refers to an evolving state of competency that enables each individual to respond effectively to ever-changing personal and economic circumstances.”
Although each financial literacy definition is varied, most have similar components. Each of the financial literacy definitions listed refer to the importance of having the skill sets and knowledge to make informed decisions.
The National Financial Educators Councils financial literacy definition also adds in a psychological component. The NFECs’ team of Certified Financial Education Instructors (CFEIs) and Certified Financial Education Professionals (CFEPs), that have personally reviewed the complete financial statements of over 10,000 people nationwide, feel this is a critical component. A NFEC spokes person states “A lot of people know what they should do; however a good majority freeze up when it comes time to make a financial decision. Most have the knowledge but lack the confidence to make the right decision and take action in a decisive manner. Since money is directly tied to peoples emotional state we feel including this component in our financial literacy definition is critical.”
Another unique portion of the NFECs’ definition is that it includes reference to a larger impact than just ones on personal financial situation. “Global community goals” were referred to and this correlates with the NFECs’ financial education standards that include social enterprise.
All three financial literacy definitions either directly or indirectly refer to a state of changing economic environment. The Jump$tart financial education definition goes into detail by stating “Financial literacy is not an absolute state… Financial literacy refers to an evolving state of competency.”
To get more information on the NFECs’ financial education services and enter your name and email on the top right corner of this webpage. This financial education definition is further described in the whitepaper that you can access complimentary.