What is financial literacy and why is it important?
What is financial literacy and can it help get you out of debt?
There is a saying that knowledge is power, and nowhere is that more true than with your finances. If you’re dealing with the burden of debt, you may be wondering how you got there and you may also be wondering how you’re going to pay your debts off and move forward. The answer is to become financially literate, because the more you learn about how to manage your money, the more effective your efforts will become.
What do you know about your finances? You can start the learning process with our debt learning centre. Are you struggling with debt and are unsure of what your options are? To explore possible solutions, call one of our trained credit counsellors at 1-888-294-3130 or visit our free online debt analysis.
“Becoming financially literate can change your entire life because it gives you the foundation from which to manage your money responsibly. It’s about shifting control too. Your debt isn’t in charge of you; you are in charge of your debt, and you can take back control by learning about financial concepts,” says Jeff Schwartz, Executive Director, Consolidated Credit Counseling Services of Canada.
“Being financially literate also gives you the ability to plan ahead. This means that you’ll be able to set goals and measure your progress over time,” says Schwartz.
What is financial literacy?
Simply put, financial literacy is knowledge about financial, credit and debt management. This includes understanding basic concepts around banking, consumer rights, savings and accounts, credit cards and other unsecured debt mortgages, investments, interest rates, debt relief options and more.
This can seem like a daunting list, especially if you’re just starting to learn about your finances, but if you take it one topic at a time, you’d be surprised at how much financial knowledge you can quickly get under your belt. And the more you know, the more able you will be to make smart decisions around your money.
Bottom line: commit to learning and don’t be afraid to ask questions.
How do I learn about my finances?
There are all kinds of resources available to you; you can read books, research online or even take seminars in your community. Another good strategy is to align yourself with a financial professional who you trust, who can help to explain concepts to you, as well as help you understand how they apply to your personal situation.
Why does financial literacy matter?
It is essential today more than ever before to be financially literate. That is because there has never been so much choice available for consumers as there is right now. How do you know if you’re making the right choice? If you aren’t financially literate, you won’t know if you are. You’ve got to remember that your financial choices have implications in the moment that you make a decision and in your future too.
The other reason that you need to learn about your finances is that credit is accessible to more people than it has been in the past because of lower interest rates. It’s important that consumers understand the role of credit in their own personal context and how it can be used to reach your financial goals, not create financial trouble.
Here is an example. Let’s say that you apply for a credit card that has a sweet introductory offer with a low interest rate. You don’t really read through the fine print to understand how that rate is calculated (i.e. what is the APR) and what the time period is on that offer.
What could happen here is that you end up with debt you weren’t expecting that is accumulating at a higher interest rate than you’d budgeted for. You might possibly be paying fees that you didn’t anticipate either. Wouldn’t it help you address your financial goals better if you made a decision fully understanding what you’re getting into?
It’s how you take charge of your debt
Why is financial literacy so important when you are trying to get out of debt? In part, it is because you are able to properly assess your various debt relief options as they pertain to your own financial situation. You will also be more likely to be able to live a debt-free life moving forward, by translating financial literacy concepts and ideas to real-life tools and strategies to help you manage your money in your daily life.
Two of the most important tools in responsible money management are budgeting and saving. By becoming financially literate, you’ll learn how to set a budget that includes savings for various goals.
How to build your confidence
Low financial literacy goes along with low financial confidence. The more you know, the more confident you will become in money matters. That is going to increase the likelihood of reaching your financial goals successfully.
Having a handle on your finances will also help you determine how to get the best value for your hard earned money. You’ll also know how to shop around for financial products to get the best deal or even give you the ability to negotiate interest rates, if that applies.
Protect yourself against fraud
Being financially literate will make it easier to spot a scam. The most reliable radar you have to protect yourself against financial fraud is the ability to know if “something isn’t right.” Financial literacy will provide you with that skill set. Learning about how financial products work means you’ll know how to protect yourself, when it comes to divulging personal information, PIN numbers and more. You’re also less likely to shop online in an unsecure environment, because you’ll know what to look for.
Additionally, you’ll know about your rights as consumer, how to proceed if you’re a victim of fraud.
Reduce debt stress
Being financially literate will also reduce your stress levels, because you’ll be able to have “big picture” understanding. It’s easy to feel overwhelmed by debt in the present moment, but learning about financial concepts will let you more easily identify your path out of debt, which can soothe your money worries.
This workbook is designed for middle and high school students to help them establish a foundation for a lifetime of financial responsibility by teaching about budgeting concepts, opportunity losses, wise use of money and the importance of saving money.