What is financial literacy? (And why is it important?)

Do you remember the old memes and tweets you used to see (and maybe still do) about how someone is so “thankful” they learned how to calculate the circumference of a circle in high school, but have no idea how to do their taxes? As funny as it may be, this is a sad truth for many Americans. Financial illiteracy is a hot issue in the United States, and somehow it only seems to be getting worse. Many Americans claim to have never been educated about how to manage their own finances. And while most of us may never use the circumference equation again in our lives, each and every single one of us has taxes to pay.

For many Americans, they’ve gotten the short end of the stick. It’s a sad reality. Money can be such a powerful tool to do good in the world, but most of us don’t even know how to budget our own bank account. This is called financial illiteracy – the lack of skills and knowledge that allows a person to make informed and effective decisions with all their financial resources.

Financial literacy, on the other hand, is just the opposite of that – and then some. Financial literacy is not simply knowing what to do with your money. Rather, it is understanding the relationship you have with your money, and developing the skillsets to effectively utilize financial resources in making progressive steps to achieving financial freedom.

So why is financial literacy important? Money is just money, right? Well, if that were true, then everybody would be financially free to do whatever the hell they wanted! Money is not just money. It is a mindset. Money alone is only part of the financial literacy equation. Being financially literate is a holistic definition that emphasizes understanding the value of money, the relationship you have with it, the resources you use to grow it, and the mindset you bring back to your bank account at the end of the day.

Think about the relationship you have with your money. What role does money play in your life? Is it something to be gained, and then to be spent away? Is it something you work for because you believe that’s the only reason to spend your life working? It’s so easy to get caught in these mindsets, especially when everyone around you is in a similar mind-space. The first step to paving the path towards financial freedom and becoming financially literate is to ask yourself these questions and learn about yourself. They aren’t hard questions, but the hard part is disciplining yourself to make the changes necessary to become financially free.

Financial literacy is important to understand because it is different for everyone. For one person, it means moving out of their parents house after recently graduating college. For another, it means providing financial security for their family in case of an economic downturn. For another, it means being able to retire at a comfortable age and not have to worry about running out of money. Whatever the case, it is important to ask yourself the questions about your relationship with money, and determining what steps you will take to see your vision come to life.

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