Financial Literacy Meaning
What does financial literacy mean? It is defined as a person’s understanding of their personal finances. This includes an understanding of the options they have at their disposal to create, implement and maintain a financial plan that will meet their long-term and short-term goals. Financial literacy also has a deeper meaning beyond a formal definition. Financial literacy means personal freedom to not be money’s lifetime slave. It means individual sovereignty, taking responsibility for your own money and determining the outcome.
What is Financial Literacy?
A financial literacy meaning involves the application of financial knowledge towards the goal of improving the financial health of the individual. Financial literacy meanings are all in agreement that in order to build financially stable lives, students and workers must be well versed in financial matters. That means know time tested practices created to assist them in meeting their financial goals. As more and more are quick to recognize the numerous benefits associated with being financially literate, educators are slow to teach such a skill in public schools. View the NFEC’s financial literacy definition.
Financial Organizations Define Financial Literacy
“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” (National Financial Educators Council).
“‘A combination of awareness, knowledge, skill, attitude and behaviour necessary to make sound financial decisions and ultimately achieve individual financial well-being“ (Organization for Economic Cooperation and Development). https://www.oecd.org
“The ability to use knowledge and skills to manage one’s financial resources effectively for lifetime financial security”.
https://www.jumpstart.org
“Financial literacy is a combination of financial knowledge, skills, attitudes and behaviors necessary to make sound financial decisions, based on personal circumstances, to improve financial wellbeing” (Australian Securities and Investments Commission). http://www.financialliteracy.gov.au
Financial Literacy Must Become Financial Behavior
When done correctly, financial literacy will focus on molding behaviors as the measurement for success. Without a permanent change in financial habits, a program will have failed to achieve its overarching purpose of improving financial well-being. How can programs strongly encourage participants to use their new competencies? A financial literacy program following best practices can induce behavioral modification. Some of the best practices outlined by federal bureaus and eminent education foundations can be found below. What is financial literacy? Read below to see what how other industry leaders definitions.
The Organization for Economic Co-operation and Development suggests that in order to maintain focus, reasonable and measurable objectives along with a corresponding timeframe should be defined (Organization for Economic Cooperation and Development). http://www.oecd.org
The U.S. GAO maintains that delivery methods should be constructed with the audience in mind. There is some evidence to suggest, for example, that youth are better inclined to retain information when learning through a simulation (University of North Texas). https://digital.library.unt.edu
Without Education, Financial Literacy is Modeled from Parents and Community
40.2% of those with low levels of financial literacy relied on parents, friends, and acquaintances as their most important source of financial knowledge, compared to 20.8% of those with the highest levels of financial literacy (National Bureau of Economic Research).
http://www.nber.org
Parents who have three or more types of savings are more likely to have kids who discuss money with them (83% vs. 66%) and less likely to have kids who spend money as soon as they get it (40% vs. 52%) or lie about their spending (34% vs. 43%) (Money Confident Kids). http://www.moneyconfidentkids.com
People Overestimate their Level of Financial Literacy
Two in five U.S. adults report keeping a budget and tracking their spending (National Foundation for Credit Counseling). https://www.nfcc.org
Nearly two in ten adults roll over $2,500 or more in credit card debt each month (National Foundation for Credit Counseling). https://www.nfcc.org
Only one in five (19%) say they are not knowledgeable about annuity products in retirement (1 or 2 on a 7-point scale), suggesting many overestimate their knowledge of annuities (The American College). http://retirement.theamericancollege.edu
What Does Financial Literacy Mean? Leaders Speak Out About the Meaning of Financial Literacy
“Financial literacy is not an end in itself, but a step-by-step process. It begins in childhood and continues throughout a person’s life all the way to retirement. Instilling the financial-literacy message in children is especially important, because they will carry it for the rest of their lives.” – George Karl, former NBA coach
“Financial literacy is just as important in life as the other basics.” – John W. Rogers, Jr., CEO Ariel Capital Management
While it seems that every government agency and financial education foundation has their own financial literacy meaning, the common thread among them all is that they solidly link the financial knowledge of an individual to the specific set of behaviors that enable a healthy financial life. Most also agree why financial literacy is important and convey the need for teaching this subject matter. Financial literacy meanings focus on essential personal finance skills: budgeting, saving for both retirement and emergencies and investing. The high numbers of financially illiterate youths in our education system and adults in the workforce are alarming and demonstrate why financial literacy training is important.