How to improve your financial literacy

Making the most of your money throughout your day is central to good money management, but without the proper knowledge to make these choices, you may fall short of achieving your goals. Understanding basic financial concepts, known as financial literacy, can help you make informed decisions. Unfortunately, many Americans struggle with financial literacy, with some studies indicating that only 57% of adults are financially literate.¹ Thankfully, it’s never too late to develop money management skills and become better informed about your budget, managing debt, choosing investments, building savings for the unexpected, and preparing for retirement.

Gauging your financial literacy

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

Even if feel your knowledge has room for improvement, every step you take to boost your expertise could have a substantial impact. 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 you may be able to improve your financial literacy and money management skills in several key areas.

Learning to budget

Building your knowledge and finding more balance in your l life may stem from your budget and understanding your spending and saving habits. 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.

By having this detailed overview, you’re able to spot unnecessary spending or expenses that may be cutting into your savings. As you regularly work with your budget and become well-versed in your saving and spending practices, your financial literacy grows.

Saving for emergencies

Life is anything but predictable and unexpected events may require you to tap into your savings. However, not everyone is prepared to do so. Nearly a quarter of consumers have no savings set aside for emergencies², which can lead to financial hardship quickly in the event of unexpected medical expenses, home or car repairs, or a loss of income. Without preparation, these expenses could have a lasting effect on your future. Understanding the value of an emergency fund is part of building financial literacy and may help you prevent debt from accumulating when unplanned expenses arise. When you create an emergency fund that includes three to six months of expenses, and regularly contribute money to it when possible, you’re able to stay more grounded during a challenging time.

Decreasing debt

Most of us have some debt, whether it’s credit cards, auto loans, a mortgage, 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.

Planning for retirement

In addition to using your budget to achieve short-term goals and manage your expenses, another important aspect of developing knowledge is thinking about ways to improve retirement readiness. 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.

You want to include both expected and unexpected retirement 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 more you become versed about retirement planning strategies, the better chance you’ll have of establishing financial security for your future self.

Building financial literacy

If you’re looking to improve your financial literacy, but are unsure where to start, 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. Since growing your money management skills is an ongoing commitment, you’ll likely gain new skills throughout each stage of your life.

Keeping track of your budget, either manually or using a budgeting app, is also a great way to boost your know-how. 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.

Seeking financial guidance

Navigating financial planning is not always straightforward and you may have questions along the way. It can be helpful to seek the guidance of a financial professional who can assist you with creating strategies for managing your money, working toward savings goals, paying down debt, and saving for retirement.

Developing your financial literacy is an ongoing endeavor and as you learn more money management principles, you will continue to build upon a solid foundation. By taking steps to expand your knowledge and putting new habits into practice, you can make decisions with more confidence and build greater security for your future.

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

2. 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