Personal Finance Definition

An accurate personal finance definition will encompass all aspects of managing your own money. This includes different strategies and levels of risk for different phases of life and different investment amounts. A personal finance educational program should be data driven to focus on the most effective investment methods for the target audience. A general definition of personal finance is, “managing your own money throughout your life.” Personal finance includes how to weigh all the considerations that arise in making decisions about your money. All the variables must be considered, including how to keep your money safe throughout an unknown future. Things change suddenly, both in your own household and throughout the world. You must do what you can to make sure your money maintains its value no matter what happens.

What is Personal Finance?

A personal finance definition varies based on the institution that is being asked. While a concrete personal finance definition may not exist, the major government agencies and financial education programs agree on the basics of what constitutes personal finance. It deals with the management of an individual’s personal capital in a prudent manner that is conducive to asset growth and good financial health. Personal finance deserves to be a cornerstone in any well-crafted financial education program.

Assimilation of Personal Finance Definition Administration

Infographic of Personal Finance Definition Choices

Definitions of Personal Finance

“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).

“Personal Finance is made up of various parts, but can be summarized as budgeting, setting spending and saving priorities, cash flow planning, and efficiently maximizing benefits through rewards programs.” – Anthony G. Lanza, Spectra Investment Management

“This is anything pertaining to the financial picture for an individual and/or family. This would include budgeting, savings, retirement planning and evaluating different scenarios, investment management, evaluating insurance needs, benefits from employers, estate planning, tax planning, etc.” – Glenn Moore, Gibraltar Financial

“The ability to read, analyze, manage, and communicate about the personal financial conditions that affect material well-being” (National Endowment for Financial Education).

Personal Finance Education Includes Knowledge and Practice

While poor financial education may deliver some knowledge, it will leave people almost as ill-prepared as those who are financially illiterate. If financial literacy education is to be effective, it must follow the best practices outlined by distinguished organizations. The curriculum must be designed to maximize positive behavioral change. While financial knowledge may make learners feel more confident, they can only be truly empowered if they take their financial lives in their own hands and use what they have learned towards bettering their financial health.

A key part of personal finance is to use financial education to improve an individual’s financial situation. Knowledge of budgeting, saving and investing is not useful if that expertise is not actively employed towards the goal of reaching the financial objectives. Both public policy makers and financial educators must keep in mind that the curriculum they design should have an appropriate emphasis on the real-world application of financial knowledge to the lives of participants.

The Coalition of Higher Education Assistance Organizations (COHEAO) emphasizes that repetition must find a place in a strong curriculum if the program is looking to impart long-term retention of financial concepts onto students. Repeated use of interactive activities and tests have been shown to enhance long-term retention (Coalition of Higher Education Assistance Organizations).

The Financial Consumer Agency of Canada (FCAC) asserts that collaborating with peer programs, the private sector, and government initiatives will serve to maximize finite resources and impact the largest possible number of individuals (Financial Consumer Agency of Canada).

Researchers at NBER demonstrated the positive relation between the average stock market participation between the individual’s community and the individual’s participation rate in the markets. This effect was proven to be stronger in more sociable communities (National Bureau of Economic Research).

An additional year of schooling increases the probability of having an investment income by 4.4% for whites and 1.7% for blacks (Harvard Business School).

People Overestimate Their Personal Finance Knowledge

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).

65% of adults in the United States report using a saving account (National Foundation for Credit Counseling).

44% of Americans aged 22-26 do their own taxes (Bank of America).

What is the Definition of Personal  Finance? Experts Speak About Personal Finance

“Financial literacy is just as important in life as the other basics.” – John W. Rogers, Jr., CEO Ariel Capital Management

“Being promoted to a top position in your organization, or even being elected to public office, does not suddenly endow you with financial literacy, if you did not acquire and develop it, earlier in your life.” – Strive Masiyiwa, founder of Econet Wireless

Personal Finance Education for a Financially Secure Life

The personal finance definition is an important piece of financial knowledge that those looking to be financially literate must know. In practice, while the personal finance definition varies slightly for every institution, all agree that personal finance is one of the main pillars for leading a financially secure and healthy life. If you are worried about a lack of personal finance classes within your community, you can partner with financial education companies to persuade public policy makers to mandate a course in personal finance within the K-12 public education system.

The National Financial Educators Council personal finance definition is:

“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.”

Personal Finance Definition from Other Groups

Listed below are several personal finance definitions that do vary but also do share commonalities.

The Consumer Financial Protection Bureau defines personal finance in four parts: feeling in control, capacity to absorb shock, on track to meet goals, and flexibility to make choices.

What is the definition of personal finance? Investopedia defines personal finance as “All financial decisions and activities of an individual, this could include budgeting, insurance, savings, investing, debt servicing, mortgages and more. Financial planning generally involves analyzing your current financial position and predicting short-term and long-term needs.” notes “Personal finance is defined as the management of money and financial decisions for a person or family including budgeting, investments, retirement planning and investments.”

A crowdsourced definition of personal finance as shown on Wikipedia states, “Personal finance is the financial management which an individual or a family unit is required to do to obtain, budget, save, and spend monetary resources over time, taking into account various financial risks and future life events.”

The NFEC’s personal finance definition features a uniqe psychological component. The NFEC’s Curriculum Advisory Board contends “since money is directly tied to peoples emotional state we feel including this component in our personal finance definition is critical.”

The NFEC’s financial literacy definition is further described in the whitepaper that you can access complimentary.