5 Simple Steps to Improve Your Financial Literacy in 2023

By Myles Leva

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Last Updated: November 15, 2022

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Financial literacy refers to an individual’s ability to understand and use financial skills. It covers many areas, starting with personal finance.

But one’s financial literacy should grow to include:

  • budgeting
  • investing
  • maximizing tax advantages
  • credit
  • retirement planning

You can’t hope to be a financial genius right from the start. Financial literacy is a lifelong journey, but one that can be most advantageous when you invest time into it.

In this article we will cover:

  • The importance of financial literacy
  • A simple checklist for you to improve yours

 

 

Why is financial literacy important?

Financial literacy affects micro and macro-economic trends.

The more financially literate an individual or a group of people are, the better off the individual and the group is.

This may sound intense, but it’s the subject of a lot of research right now.

At the group level, the more people understand financial fundamentals, the better a country’s economic situation. There is substantial evidence that when people are financially literate, they accumulate more wealth, and the economy is better off in several ways:

  • More people plan, save, and invest
  • Mortgage rates are better
  • Home ownership goes up

For example, if financial literacy is low, young people are more likely to take payday loans when they have better options.

They are more likely to need financial support, especially due to too much credit card debt.

This all spills over and strains economies because people are simply less financially stable.

At the individual level, financial literacy means better outcomes due to:

  • More prudent saving and investing decisions
  • Less waste
  • Less vulnerability to predatory lending and financial fraud

The latter is particularly important, and deserves to be singled out on its own.

Online scammers are more active than ever, and young people are falling for it at a higher rate than those in older generations.

The government can do more to address this, but their best option (and yours!) is to improve financial literacy, which is normally the first and only line of defense.

 

 

How can financial literacy be improved?

1. Start a Budget.

Starting a personal budget is the best way to kickstart your financial future. If you don’t have one, you are lost. You don’t know what percentage of your income is going to which expenses. You are saving only as much as your whims allow you.

For some frugal people, it’s easy to save while not actively budgeting. But as the cost of living rises and many people continue living paycheck to paycheck, this approach is less effective.

Creating a new budget starts with an assessment:

  • Tracking each category of your spending
  • Determining the exact amount of money going to each category
  • Seeing what percentage of your money goes to each category

A budget is just a more deliberate approach to spending. Your spending is the first key to your finances, apart from your income.

Your new budget will promote your personal financial literacy by building the first part of it: your literacy of your own natural financial habits. From there, you are empowered to make fact-based decisions about your personal finances.

 

2. Fit Financial Learning into Your Schedule

Some financial concepts are simple. But others, particularly investing, take time to grasp and take years to become proficient at.

Most people don’t intuitively understand the following financial topics without at least some research:

  • Investing (overall)
  • Business financing
  • Estate planning
  • Personal and business credit

Fitting even one hour of financial literature into your weekly schedule can make a difference. But the more the better. After all, your financial future is more than worth setting aside some time to learn more about.

If you don’t know where to get started, have a look at our top seven financial books for beginners.

 

3. Look at Your Credit Report

As with your budget, improving your credit starts with some meaningful research.

Fortunately, understanding your credit is fairly simple; you start by looking at your credit score and credit reports.

We have a full guide on personal credit reports that you can find here.

Your personal credit score is a score given by credit reporting bureaus. It is used by creditors of all kinds to help them gauge your trustworthiness with borrowed money.

There are several factors that go into it. Overall, your credit score is higher when you use different types of credit responsibly, paying back your debts on time.

After you look at your credit score, check out your credit reports. They will tell you why your credit score is where it is, giving you a full list of all your credit transactions.

You are legally entitled to one free credit report per year from the 3 major credit reporting bureaus.

 

4. Consult a Professional

Sometimes personal finances just don’t make sense to you.

You may find yourself audited by the IRS, struggling to comprehend weird parts of a loan agreement, or face many potential problems.

In these cases, consulting with a professional might be the right choice.

Financial counseling and other financial services are sometimes available for free. Look for non-profits in your area that may be able to help.

 

5. Follow FTC Scam Alerts

Scammers have always existed. Their moral failures and basic tricks are much the same. But the specific methods they employ are always changing.

When new scams start becoming trendy in the criminal underworld, the FTC will report on them. Their consumer alerts cover the precise practices scammers employ.

For example, veterans are in the spotlight this November, and scammers are trying several different tricks to gain money. This includes “helping” veterans claim benefits (for a payment) which are actually free and easy to apply for. They are also taking advantage of veterans’ charities.

The FTC has published reports on these issues, providing guidance for consumers who want to support veterans, not scammers.

Follow the FTC for constant updates on the scams that are affecting people at any given time.

 

 

Conclusions

Financial literacy is about making the right financial decisions, maximizing your efficiency, and avoiding mistakes and scams.

With these financial literacy tips, we hope that you can improve your understanding of the most important concepts so you can thrive.

Photo by Pixabay

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