What is financial literacy?
Financial literacy is having a clear understanding of key concepts around money – for example, debt, mortgages, budgeting and savings.
Why is it important?
Most of our choices – from where we live to the food we eat – are dictated by money, often even more so than we might think. Our opinions around money are often the result of the financial landscape we experienced growing up, as much as it is about our financial picture today. Being financially literate enables us to make decisions that work for us, and feel confident in making them. It also helps us to weather the storm of the financial ups and downs that happen throughout our lives.
You can make more informed decisions
For some of us, we often feel as if we need to know everything before we can start something, but the complexities of personal finance mean that we’d probably never start if we waited until we had encyclopaedic knowledge of the topic. Instead, start with one or two personal finance themes – it might be the ones you’re most interested in or the ones that will have the greatest impact on your current situation. Then get to a level where you feel comfortable making decisions and don’t be afraid to lean on financial advisors and experts.
You feel more confident with managing your money
Financial literacy doesn’t happen overnight. There might be some topics that you don’t feel as if you really know until you’re presented with a situation where you need to learn more about it. That’s normal. But as we start to learn more and make more decisions around our money, our relationship with it develops into a more confident one. Money is no longer seen as a scary monster but in fact a vehicle to help us to get to where we want to go. Those stop-off points might be home ownership, being debt free or an early retirement.
You start to understand the impact of market conditions/changes on your finances
Have you ever wondered how inflation affects you, or what a recession means for the economy? While I don’t think anyone needs to be an expert in the economy to be financially literate, the economy is intrinsically linked to almost every aspect of our lives. Having a broad understanding of the economy and how this can affect your finances helps you to feel better prepared in times of economic hardship and downturn.
How do you get there?
Find free resources
From audiobooks and podcasts and websites, there’s a wealth of knowledge available at our fingertips. Your local library might be worth visiting if you prefer a physical book too. To avoid feeling overwhelmed with how much guidance is out there: start by finding authors, content creators or podcasters whose stories or experiences resonate with you.
Don’t overlook financial advisors
While I’m a big advocate for learning and improving our knowledge, there have been times when I’ve leaned on trusted and accredited financial advisors to help me make big decisions. This might seem like passing the buck on gaining financial literacy, but in reality their wealth of advice and ability to explain things to me in layman’s terms gave me a step up in increasing my own understanding of the topic. Plus, sometimes we want the added peace of mind of expert help.
Check your employee benefits
Some employers offer financial wellness programmes or access to financial advisors as part of their employee benefits schemes; in fact Home Mortgage Solutions provide Lunch and Learn sessions for companies so that employees can gain knowledge and advice on mortgages, remortgaging and protection services. It’s worth asking your manager or HR department if there’s something similar that your company is able to offer too.
Talk about it
Money has long been a taboo subject but I’m an advocate for breaking down those barriers in ways that feel comfortable to us. Talking about money enables us to increase our financial literacy and deepen our knowledge. It helps us to understand whether we’re being underpaid, and gain different perspectives that we may have never considered from friends and family. It doesn’t mean their view is always the right one for you, but it does give us a fuller picture than only looking at things from our point of view.
One of the reasons why I started How I Fund This is because I didn’t have the financial literacy to make financial decisions in confidence. I spent far too much time burying my head in the sand, which only deepened an already anxious mindset around money. If you’re looking for somewhere to start building up your financial knowledge, then the resources under the Finances for Beginners section of my website might be a good place to start.
