What is Financial Literacy and Why It is Important?

Posted by Grace under Terminology on March 30, 2016

Do you know what is financial literacy? Do you want to know the benefits and advantages of being a financially literate individual? When you hear the word “financial literacy”, what is the first thing comes to your mind? Money? YES! You’re right. Money! But financial literacy isn’t just about “handling money”. It’s all about a person’s money management skills.

If a person has a awesome money management skills, he is probably a financially literate individual. Are you one of those people who knows how to manage their finances? If you answer no, you need financial education. You don’t need to become an accountant just to know what is a financial literacy all about.


Some people might think that many of the accountants are financially literate. But they are wrong. Even though they studied accounting, some accountants don’t know how to manage their own money. try to ask some fot he accountants you personally know, ask them if they have emergency funds. I am sure some of them don’t even know what is an emergency funds.

Good news for you my dear readers. Money management skills can learn through reading financial books, reading online blogs and asking financial experts on forums.

See also:  200+ Personal Finance Blogs to Learn Financial Education

What is Financial Literacy? Meaning and Definition

Financial literacy is the ability to know how to earn money, save, budget, spend and invest money to make more money. Financial literacy will help an individual on how to manage their finances. It will also help an individual to analyze a particular investment offers if the investments are scams or legit.

Financial literacy will help a person understand and learn personal finance. We can distinguish easily if a man is a financially literate or not. If you think you are lack of financial education, read the tips on how to learn it.

Read More: How to Learn Personal Finance Education? (5 Easy Ways)

What Does it Mean to be Financially Literate

Here are some of the example to identify the person if he or she is a financially literate or not. Try to read the questions and answer them one by one. Analyse yourself if you are financially literate or not. Financially literate simply means the ability to acknowledge the risks in saving and investing, the ability to spot scams and investment fraudsand the ability to not just earn money but make the money work for him by investing.

what is financial literacy-min

Interesting Post: Scams and Fraud Prevention

  1. A person will save money wherever he want to without thinking if he put the money in a vehicle that beats inflation.
  2. A person will identify the credit card that is right for him and will choose the one with low annual fee or no annual fee.
  3. John Doe invest money because his friend told him to do so. He invest because his friend promised him for a high return on investment in 3 months only.


  1. Illiterate
  2. Literate
  3. Illiterate

Purpose of Financial Literacy

The purpose of financial literacy is to help individual to plan for their finances. Imagine a man who is financially illiterate. He will work hard for money and when the paycheck comes, he will spend all the money he earned.

The purpose of financial literacy is to know what to do with your personal finances. The purpose of financial literacy is to help an individual analyze his own finances. Financial literacy can help you plan for your financial retirement.

Tips and Warnings

  • Attend financial literacy training and workshop if you want to become financially literate.
  • Asking a certified financial planner will help you understand what is financial literacy all about.
  • Enroll your child to a school that offers If financial literacy curriculum or programs.
  • Get in touch with financial experts and become expert, too.


If you want to know what is financial literacy and why it is important. Ask yourself today. How many years do you want to stop working. Now the question is “I have worked so hard for many years, how much money do I saved today.

Financial literacy is very important. If you have a great background on money management, it will become more easier to you. Actually, you will only master financial literacy if you will perform what is in it. Say for example, budgeting, saving, investing and wise spending. Financial literacy will help you know how to manage y money and above all, financial literacy will help you understand saving and investing for retirement.

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