The goal isn’t more money. The goal is living your life on your own terms.

– Chris Brogan

Financial literacy is obtaining the necessary knowledge and skills to manage finances and generate wealth effectively. These skills include saving, investing, budgeting, planning for retirement, and even borrowing. According to Robert Kiyosaki, financial literacy is simply building a positive cash flow to live an abundant life as opposed to living off of our paychecks.

Being financially literate may mean different things to different people — based on their principles, values, goals, and money personality traits. Warren Buffet, probably the most successful investor of our time, even advocated to start financial literacy as early as childhood, arguing that the financial habits we acquire while we were young will go with us into adulthood. 

It’s no wonder that the majority of the population is struggling with their finances — most of us acquired bad money habits growing up. In a study by the American Psychological Association, 87% cited that financial struggles are a significant source of stress that affect their mental health. In fact, money issues are among the top three reasons why married couples divorce. This emphasizes how important sound financial education is.

Here are just some of the benefits of being financially literate:

1. It removes our wrong mindset regarding money

Our financial mindset determines our spending and earning habits. If we think that money is evil, that financial literacy is unnecessary, that money will eventually come by, and that earning more is the solution, we tend to act negatively towards money and follow bad habits that keep us poor. Financial literacy helps us understand what money really is — a powerful tool — and how to manage it profitably for our future.

2. It enables us to change bad money habits

Wasteful spending, impulsive buying, living above your means — if you’re guilty of all of these habits, chances are you have a wrong relationship with money. Not being mindful of where and how we spend our money results from our lack of sound financial principles. If we understand how money is gained and lost, how it could be invested and multiplied, and how to grow multi-generational wealth for our family, we will change and avoid every bad financial habit. That’s the goal of financial literacy.

3. It helps us better prepare for emergencies

When we spend more than what we earn and are living paycheck to paycheck, we might not be able to save enough for our emergency funds. According to finance experts, we must set aside at least three to six months’ worth of living expenses for emergencies. This could be challenging, especially for those drowning in debt or married couples with a lot of family expenses. 

In a recent survey, only 45% of the population can set aside an emergency fund. If you’re part of the 55%, this could be a big source of anxiety on top of the financial pressure we struggle with daily. If we can’t even make ends meet now, how can we save enough money for theoretical accidents in the future? Financial literacy empowers us to manage money wisely so we can meet our needs today and save for tomorrow.

4. It enables us to manage money and debts more effectively

How we view the world affects our behavior and determines our actions. When we continuously equip ourselves with sound financial wisdom, we act positively toward money. In turn, our bad habits are gradually replaced with effective money management skills. Financial literacy enables us to understand how money works and helps us handle our income and debts with efficiency.

5. It empowers us to make wiser financial decisions 

A survey shows that almost 70% of lottery winners end up broke within seven years. That is because the true wealth that lasts requires time, dedication, and one wise financial decision after another. Aside from building positive values and productive habits, financial literacy empowers us to make sound financial decisions. With financial literacy, we can better understand where and how to invest our time, effort, and hard-earned money.

This kind of wisdom cannot be obtained overnight or after reading a book. And we will continually make mistakes. But over time, we become more efficient and wiser in managing our resources and relationships. Eventually, we’ll make fewer mistakes. With diligence and honest work, we’ll be able to build wealth that even our grandchildren can enjoy.

Bottom line

Money will not solve all of our problems, but it touches almost every aspect of our life. As a firm believer in financial peace, financial literacy should be taught at home, in school, and in mainstream media. But when these avenues do not teach us financial wisdom, it is up to us to equip ourselves. And it’s never too late to start now, whether you’re in your early 20s or late 40s. After all, Colonel Harland Sanders began franchising KFC at 65 years old using his $105 monthly Social Security check.

If you’re ready to start your journey but don’t know where to begin, read our article “How to Start Your Financial Literacy Journey.”

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