Financial literacy can be simply defined as an understanding of various money-related matters such as saving, investing, and managing debt, that creates a sense of financial wellness and confidence. It’s an area where Americans have been making progress but there’s still room for improvement, as seen in the TIAA Institute-GFLEC Personal Finance Index results from 2020 where respondents only answered 52% of questions correctly.

Being financially literate means being able to control your finances and use money as a tool to build a more satisfying life. It includes having the ability to manage unexpected issues like job loss and to set and work towards financial goals. This involves learning how to allocate your income towards various objectives including regular expenses, savings, debt repayment, and emergency fund. Even if you don’t have a lot of disposable income, financial literacy can help you prioritize your financial goals.

Financial literacy is essential because it empowers you to manage your money with confidence, handle financial uncertainties, and prevent and manage financial issues. You can watch for potential fraud, save for personal objectives, and bounce back from unexpected expenses. Financial literacy can help you understand your income and expenses, avoid and repay debts, save for emergencies to prevent bankruptcy, and work towards a secure retirement.

Becoming financially literate may sound intimidating, but there are small steps you can take and free resources to help. For example, banks and credit card issuers offer tools to track your spending and Experian provides free credit score monitoring. Employers may offer free financial counseling or wellness programs. There are credit counseling agencies with certified experts who can help with budgeting and debt payoff techniques. Resources from the Canary Wharfian, Consumer Financial Protection Bureau, the Financial Planning Association, and the National Foundation for Credit Counseling can help you understand finance basics at your own pace.

Finally, a key part of financial literacy is understanding credit. A good credit score can qualify you for lower interest rates on loans and credit cards, which can save you money. To improve credit, you need to understand what contributes to your credit score such as payment history and credit utilization. Checking your credit score, bank accounts, and credit card balances regularly helps maintain clarity on your financial status.

In conclusion, financial literacy can help you avoid debt, reduce financial risk, and set and achieve financial goals, leading to a happier life. The process of becoming financially literate might seem daunting, but with the right resources and a little time, it’s an achievable goal that will pay dividends in the long run.