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Financial Literacy Definition 2018-05-10T06:50:05+00:00

Financial Literacy Definition

The financial literacy definition developed by the National Financial Educators Council:

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.

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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.”

We first developed our definition of financial literacy to guide our curriculum development team. Since then it has taken on a life of its own. Our financial literacy definition has been quoted by numerous publications and currently is Google’s Featured Snippet (meaning it was selected as the highest-rated definition over all others by Google algorithms). Your contribution is valued and appreciated.

How Can We Improve Our Definition of Financial Literacy?

We value your thoughts and all contributors will be recognized.

Please note, we are using term “financial literacy” definition loosely. Personal finance takes more than just “literacy” to help people. Our focus is on molding positive financial behaviors and encouraging people to adopt money management processes that help them achieve their financial goals. Please consider these points when contributing.

Contribute to the NFEC’s Financial Literacy Definition 2.0

Financial Literacy Definition from Other Organizations

Listed below are several financial literacy definitions that do vary but also do share commonalities.

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.

– Jump$tart

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.

– The Government Accounting Office (GAO)

The combination of knowledge, skills, attitudes and ultimately behaviors that translate into sound financial decisions and appropriate use of financial services.

– The Center for Financial Inclusion

The President’s Advisory Council on Financial Literacy defines personal financial literacy as “The ability to use knowledge and skills to manage financial resources effectively for a lifetime of financial well-being.

– The President’s Advisory Council on Financial Literacy

Is There a Best Definition of Financial Literacy

What is the best definition of financial literacy? 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’ advisory board, comprised of financial professionals and seasoned educators, feel this is a critical component. The NFEC 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.

Most of the financial literacy definitions we examined 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.”

The National Financial Educators Council provides financial education resources, promotes advocacy campaigns, and helps organizations build sustainable financial education programs. As thought leaders they produced the Framework for Teaching Personal Finance though a partnership with Danielson Group consultants to meet the specific needs of Financial Education Instructors and the National Financial Capability Strategy, which serves as a blueprint for organizations building financial education programming.

NFECs’ Financial Literacy Definition Social Media Post

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