What is financial literacy?

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In a financial system, assets are bought, sold, or traded as financial instruments, such as currencies, loans, bonds, shares, stocks, options, futures, etc. Assets can also be banked, invested, and insured to maximize value and minimize loss. In practice, risks are always present in any financial action and entities.

Financial literacy is the ability to understand and effectively use various financial skills, including personal financial management, budgeting, and investing.

When you are financially literate, you have the essential foundations of a smart relationship with money that will start a lifelong journey of learning about the financial aspects of your life. The earlier you start the better off you will be, because education is the key to success when it comes to money.

Key components

Budgeting and financial planning: Teaching individuals how to create and manage a budget is a fundamental aspect of financial literacy. Budgeting helps individuals track their income and expenses, allocate resources, and achieve their financial goals.

Saving and investing: Understanding the concept of saving and setting aside funds for emergencies and future goals is crucial. Financial literacy curriculum often introduces individuals to basic investing concepts, including types of investments, risk and return, and the power of compounding interest

Managing debt: Many individuals rely on various forms of credit, such as credit cards, auto loans, home mortgages, and other consumer lending.[2] A financial literacy curriculum educates individuals on responsible borrowing, managing debt, and the potential consequences of high-interest debts.

Understanding credit: Credit scores and reports play a significant role in financial decisions. A financial literacy curriculum provides information on how credit scores are calculated, the importance of maintaining good credit, and how credit affects future borrowing opportunities.

Insurance and retirement planning: Financial literacy curriculum introduces types of insurance such as health, car, and home insurance and retirement investment accounts, such as 401(k) or IRAs.These elements of financial literacy empower individuals to make sound financial choices for their long-term financial security and protection against unforeseen circumstances.

Consumer protection: Financial literacy curriculum extends to understanding consumer rights and making informed consumer choices. This includes topics such as understanding contracts, comparing prices, and avoiding fraudulent schemes.

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