Four tips for improving financial literacy

We often hear about the importance of financial literacy and how understanding the basic concepts of money management can help us make informed decisions. Unfortunately, many American struggle with financial literacy, with some studies indicating that only 57% of adults are financially literate.¹ Being equipped with the skills to learn and navigate your finances effectively can lead to more confident decision-making about your budget, managing debt, choosing investments, preparing for retirement, and building your savings.

What is financial literacy?

Financial literacy means having the ability to understand the money issues you’ll face in your life, and being equipped with the skills to navigate your finances effectively. When you are financially literate you can confidently manage budgets, debt investments, retirement, emergencies, and savings. Unfortunately, most Americans don’t have enough knowledge to manage their money. According to the Federal Reserve, only 40% of Americans say their retirement savings is on track. ² As April is Financial Literacy month, here are some tips to help you learn how you can improve your knowledge.

Assessing your skills

How do you know if you’re financially literate? Begin by asking yourself the following questions.

• Do you know how to create a monthly budget?
• Are you actively trying to reduce your debts?
• Do you have an emergency fund?
• Do you know what insurance options are available that can help protect your finances and investments?
• Do you understand how investments work?
• Do you have a retirement savings plan?

Four tips to become more financially literate

Even if you feel your knowledge isn’t up to par, you can take steps to boost your know-how Since the world is constantly evolving, there are always opportunities to learn something new and further build your understanding of personal finance. Here’s how to improve your expertise and money management skills in several key areas.

1. Start by budgeting

Practicing healthy spending habits is central to building more balance in life. If you’re living paycheck to paycheck or find yourself spending more than you’re earning, it is probably time to take a closer look. Your budget is essential to getting you on track with paying your expenses, eliminating debt, and saving for your short- and long-term goals. This money management tool allows you to map out how much money is coming in each month and where every dollar is going. Being able to pinpoint any unnecessary expenses or areas that are draining your savings can allow you to take action quickly and make necessary adjustments. As you regularly work with your budget and become well-versed in your saving and spending practices, you could automatically make a positive impact on your financial literacy.

2. Pay down debt

You likely have some debt, whether it’s your mortgage, car loan, credit cards, or student loans. When used responsibly, using a credit card or taking out a loan can be helpful in achieving your goals, but it’s important to be mindful of your spending and making sure these options fit in to your overall situation. A good goal to work toward is paying off your credit card balance every month. Otherwise, if you let the balance build over time, you can quickly be faced with a large amount of debt. Becoming financially literate includes understanding the impact of debt on your finances and taking steps to make payments on time, keeping spending within your means, and carving out space in your budget for paying down debt.

3. Save up in case of emergencies

Nearly a quarter of consumers have no savings set aside for emergencies³ which can lead to hardship quickly in the event of unexpected medical expenses, home or car repairs, or a loss of income. Without preparation, these expenses may have a dramatic and lasting effect on your future. Part of building financial literacy is understanding how crucial an emergency fund is in preventing debt from accumulating when unplanned expenses arise. By creating an emergency fund that includes three to six months of expenses, and regularly contributing money to it when you can, you’re able to stay more grounded during a challenging time.

4. Plan and develop goals for retirement

Along with keeping on top of everyday expenses and working toward your short-term goals, planning for the later chapters of your life is a critical piece of developing financial literacy. Either through your own research or by working with a financial professional, you can better understand which savings options are available and ways you can build your nest egg for the future.

An important part of retirement planning is considering both expected and unexpected expenses and the amount of income that will be needed to live comfortably and maintain your desired lifestyle when you leave the workforce. Once you have this estimated total, you can than set a target amount that you will need to save each month. The power is in the knowledge, so the more you become versed about retirement planning strategies, the better chance you’ll have of establishing financial security you can depend on down the road.

How to get started with basic financial literacy

To help get started, there are a variety of tools and resources that can help you explore different money management topics. Look for educational programs and information through credit counseling agencies, websites, or government courses, such as the FDIC's Money Smart financial education program.

Keeping track of your budget, either manually or using a budgeting app, is also a great way to boost your financial literacy. You’ll be able to track your spending, create individual budgets for certain goals, which may help you take control of your finances, instead of the other way around. If you choose a budgeting app, many options also allow you to set up alerts and reminders so you can prevent overspending and keep working toward your goals.

Work with a financial professional

If you feel you need some help navigating planning and ways to better manage your money, don’t hesitate to seek the guidance of a financial professional. He or she can assist you with creating strategies for planning, saving, retirement, and paying down your debts.

By taking some simple steps today, you can put yourself in a strong position to make confident decisions that set you on the path toward achieving your goals.

1. Investopedia, The push to require financial literacy education, 2023

2. Federal Reserve, Survey of household economics and decision making (SHED), 2022

3. Consumer Financial Protection Bureau, Emergency savings and financial security, 2022

The term financial professional is not intended to imply engagement in an advisory business in which compensation is not related to sales. Financial professionals that are insurance licensed will be paid a commission on the sale of an insurance product.

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REV 3/2023