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.”
Definition from Other Organizations
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.”
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.”
Cambridge Business English Dictionary simply defines financial literacy as: “The ability to understand basic principles of business and finance.”
The Center for Financial Inclusion defines financial capability as “The combination of knowledge, skills, attitudes and ultimately behaviors that translate into sound financial decisions and appropriate use of financial services.”
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, promote advocacy campaigns, and help organizations build sustainable financial education programs. As though 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.