Do You Consider Yourself Financially Literate? Check by Recognizing These 5 Key Principles

Do You Consider Yourself Financially Literate? Check by Recognizing These 5 Key Principles

Would you call yourself an individual who’s ‘financially literate’? While we’re not necessarily claiming that you know the Stock Market like the back of your hand, since we all use money in our daily lives, being financially literate should be a necessity across the board.

The thing is, you can’t just ask whether someone is financially literate and expect a solid answer across the board. Being literate in this way means different things to different people, from being confident with money to know the lingo and how credit works.

Since being financially literate is a key area that many people need to improve on, today we’re going to explore five key principles you can ask yourself to see whether or not you’re financially literate right now.

#1 – Using Interest

Whether you’re putting your money into a savings account, whether you’re investing it, or perhaps you’re taking out a loan or some other form of credit; each of these financial processes will be governed by interest.

This means to be financially literate; you’re going to need a basic understanding of how this interest works. This understanding will help you to work out how much you’re going to be paying or receiving, ensuring you’re able to keep a clear eye on your spending.

2 – Understanding Financial Terms

Of course, in the very literal sense, being financially literate means you can understand certain terms that are used in the financial industry. You might read them in a newspaper, in the media, or hear them on the news.

These terms can include anything, such as Savings and Interest, all the way through to asset allocation and inflation. To make things more complicated, these terms may mean different things to different people, but having an understanding of them means you’re on your way to being financially literate.

#3 – Understanding Inflation

Inflation is a key part of modern society, and many people find this a confusing concept. Yes, the prices of items and services rise, but so does income; which everybody is still paying the same amount.

Of course, there are going to be exceptions to this rule, but when seniors say they remember when things that cost a dollar in the past now cost $10, they’re not at a lost – inflation has just happened.

#4 – You Understand Your Greatest Asset

Throughout your entire working life, there is only one asset which is of the most important to you when it comes to earning and spending money, and that is yourself. To be financially literate means you understand this entirely.

If you work in a physical job and you break a bone, or you fall ill, you won’t be able to make money. If you’ve got a gambling, drug or alcohol addiction, and you’re not being proactive or at least trying to help yourself, there’s no way you’re financially literate.

#5 – You’re Proactive in Risk Management

While not everybody is going to invest money in their lifetime, it’s still so important for everybody to understand the process and behind-the-scenes information on risk management. There are going to be times in your life where money is tight, and you’ll need to make some calculated expenses.

This is risk management, and understanding how it works, how to make a good decision and how to calculate whether a risk is worth it or not is a key way to making sure you’re financially literate.

Summary

While this is just scratching the surface of what it means to be financially literate, this should give you a clear idea on what’s expected of you. Make sure you’re researching in your free time and becoming the best you can be with your finances in order to live a happy and fulfilling life.

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