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Financial Literacy
American Middle Class

Financial Literacy: How to Be Smart with Your Money

The estimated reading time for this post is 313 seconds

Money is an important commodity in today’s society. People use it every day to buy basic survival needs. In 2015, a survey showed that 62% of adults worldwide have a bank account. Money is everywhere, and people have the ability to hold it and spend it on products and services.

Managing one’s money and bank account is a skill that is learned. Financial literacy is the capability of a person to understand concepts about financial skills, such as budgeting, saving, and investing their money. Financial education is slowly being integrated into schools, but many people still struggle with making ends meet and are in the dark when it comes to putting their money in the bank. Being financially literate has its benefits, and this is why it must be taught at an early age.

The Core Principles of Financial Literacy

Financial literacy means being able to make appropriate decisions with your money. There are five basic components to financial literacy that every person should know and learn.


It’s important to be aware of how much you earn and how much you spend. Budgeting is the ability to allocate your funds appropriately for all of your expenditures. Budgeting allows you to know how much of your money you will spend and how much you can save. Money can go to waste if it is not allocated properly.


When you budget, you may find a little bit of excess money. You can put this aside as your saving. Savings are important because its the money that can come in handy during emergencies. Savings can also be used for retirement when a person is no longer capable of earning. Prioritizing savings is crucial for a healthy relationship with money.

Loans and Interest Rates

People often get loans for things they need, such as student loans and house loans. These loans enable people to receive the goods and services they need without paying an upfront price. But loans often come with an interest that can add up over time. Before you borrow money for college or work, have an idea of what interests are. It will help you save money if you choose the loan that is right for you.


Taxes are involuntary charges that you pay to the government. You are taxed based on your salary, your investment, and your material possessions. There are plenty of ways that you can be taxed, but what’s important is that you are aware of these debts to the government, and you can pay them. Tax evasion is a crime.


You would want to invest your money into something worthwhile. Putting your money and time into an investment will accumulate income and profit. Investing your money early means that you will receive something in return in the future, and the resources you have allocated can double in amount.

There are plenty more crucial things with financial literacy, but for now, these five things are important to keep in mind if you want to stay on top of your money game.

Why is Being Financial Literate Important?

There are plenty of benefits to being financially literate. Being able to manage your money is a sign of independence. You do not rely on other people’s finances to thrive, and you have enough financial freedom to cover your expenses while being able to pay all your loans and bills.

Financial literacy is also important if you are a working person or are running a business. Being smart with your money will help you avoid getting into debt or going bankrupt. Knowing where your money goes and being transparent with your funds will not only make you a successful career person or businessperson, but it will keep you secure until you retire.

Finally, financial literacy is an asset you can show off to employers and investors. People trust someone who knows how to handle their money. People will see you as responsible and competent to run a job or business. You will have a higher chance at success in your career life if you are financially literate.

How Will I Access if I am Financially Literate?

There are ways for you to know if you are truly financially literate.

First, look at your expenses. Do you save your money for a rainy day, or do you spend everything the minute you get your salary? Review all of the things you have bought, invested, and spent. You are financially literate if you are capable of spending your money wisely without borrowing from another person.

Second, ask yourself if you have any unpaid debts. The higher amount of debt that you owe, the more likely you need to work on your financial management. Financially literate people won’t allow themselves to have any unpaid debt go unnoticed. Debt and interest can bite you back if you sweep them under the rug, so make sure you cover them before it’s too late.

Finally, look into your future. Have you thought of any future investments or what your plans are for retirement? Being financially literate means, you always plan for what’s ahead. You can’t predict what will come, so you allocate money just in case. It’s not to say that disasters will be coming in your way, but it’s better to be prepared for the worst.


Financial literacy is a skill every person should possess if they want to be successful. Being financially literate means, you know how to manage your money and know when to use it or keep it.

Anybody can be a financially literate person, even an average Joe. Sometimes, even the brightest people aren’t the smartest when it comes to saving and spending. Success boils down to how you manage your income and the investments you make in the future. There are many deals, opportunities, and changes this world has to offer; you need to be smart when it comes to grabbing these moments. Financial literacy will ensure you that you don’t make big mistakes with your money, and if you do, you will know how to bounce back and get back on the race.

There is a bright future for financially literate people, and that future always spells success.

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