What Is Financial Literacy and Why Is It Important?

By pairing Credit Karma with an app like Tally, you can steadily see your credit score improve alongside your personal finances, allowing financial …

As the world around us continues to deepen in complexity, to keep abreast of the latest changes affecting our lives, we need to take a proactive approach in learning new skills, educating ourselves, and gaining exposure to new ideas. Doing so will reward us in innumerable ways.

One important area for young adults to focus is learning financial literacy, or absorbing financial knowledge and skills to improve our personal lives through our everyday actions. Formally, financial literacy is the ability to understand issues related to money and how it’s used, especially when it comes to managing your personal finances.

Financial literacy, unfortunately, isn’t an innate skill and is something which requires effort to build. The TIAA Institute found in a 2018 survey that most Americans don’t have “the knowledge necessary to make routine financial decisions.” On a test with basic financial topics, the average adult could not answer half of the questions correctly.

Further, aBank of America survey discovered less than one out of three respondents between the ages of 18 and 26 considered their high school education to have satisfactorily taught them useful financial habits. For most people, if you want to learn how to improve your financial literacy, you need to seek out opportunities to do so.

What follows are several useful financial literacy resources you should consider for improving your money knowledge and skills. Begin first by understanding finance jargon and then proceed to learning more about financial literacy topics through books, courses, podcasts, apps, and other resources. Afterward, we walk through the benefits of financial literacy and learning it at an early age.

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Where to Learn Basic Finance Jargon

Before you’ll be able to understand more complex financial literacy topics, there are some basic financial terms you’ll need to learn. One resource that takes seemingly complex financial terms and makes them easy to understand is learn.robinhood.com. A few examples of topics they cover include:

The Robinhood investing app has done a lot to benefit retail investors. Of note, Robinhood has slashed trading commissions to $0, meaning you pay nothing to trade stocks, bonds, or index funds on Robinhood. This free trading extends to more exotic (and complicated) areas like options trading and cryptocurrencies, though these remain items subject for more sophisticated investors.

Additionally, the service offers a Cash Management feature, which acts similar to a high-yield savings account from a company like CIT Bank. Robinhood offers numerous products and services to its customers at low cost or free, making one wonder how does Robinhood even make money?

Well, many of the best Robinhood alternatives have taken note and attempted to replicate its business model. One thing for sure with these numerous brokerages competing on price is that retail investors have come out as the winners. After decades of costly investing, firms like Webull, Acorns, and M1 Finance have managed to slash commissions to $0 and provide their cost-effective services to Millennials who often have small amounts of money to invest at any one time.

For those interested in learning more about many financial literacy topics, consider visiting the learn.robinhood site to see how their explanations can make complex finance topics simple. From there, you may want to sign up for the Robinhood app to learn how to start investing money.

Popular Financial Literacy Books

Books, whether you read a physical copy, an ebook version, or listen to them as audiobooks, are still one of the most effective ways to broaden your financial literacy. There are seemingly endless books fighting to give you financial advice, but the quality is not all equal. These are some of the top finance books people find help them improve their financial literacy.

Money Master The Game: 7 Simple Steps to Financial Freedomby Tony Robbins

Robbins’ book states, “Information without execution is poverty. Remember: we’re drowning in information, but we’re starving for wisdom.” If this line resonates with you and you feel overwhelmed with financial research, Money Master would be a good read for you.

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Tony Robbins conducted extensive research as well as interviewed prominent investors, such as Warren Buffett, John Bogle, Paul Tudor Jones, and more. He created a 7-step blueprint for how you can secure financial freedom. Robbins gives readers actionable finance advice, such as how to formulate a savings and investing plan, and busts common finance myths.

Total Money Makeover by Dave Ramsey

Millionaire Dave Ramsey is no stranger to writing and teaching about finance. Total Money Makeoveris his most notable book and provides seven “baby steps” to help you get out of debt, save money, invest, and more.

This isn’t a book on finance theory, but is instead clear and actionable. You’ll learn the top most dangerous money myths. The book also comes with 50 success stories of people who followed Ramsey’s principles.

The Millionaire Next Door by Thomas J. Stanley and William D. Danko

For this book, Stanley and Danko analyzed the habits and behavior of millionaires to see how they spend money, save it, and invest it. From this, they found seven basic rules everyone should follow if they want to accumulate wealth.

Hint: wealth doesn’t necessarily require a high-profile job. Many millionaires didn’t just inherit money, but worked hard and saved most of their earnings. Learn their frugal habits and how wealthy doesn’t always mean flashy.

Top LinkedIn Learning Courses for Financial Literacy

You don’t only have to improve your financial literacy through reading. You can learn through online finance classes as well. LinkedIn Learninghas a variety of finance and financial literacy courses geared at teaching you the basics of different finance topics.

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A handful of examples include:

Once you’ve taken some beginner courses, you can continue with intermediate and advanced classes until you feel confident in your financial knowledge.

Best Podcasts for Building Financial Literacy

Do you prefer just audio over video? You’re in luck because there are plenty of finance-related podcasts available for improving your financial literacy. You may want to check out some of the following:

Consider trying out a few podcasts to see which type of style you prefer. You can listen to these while you do other tasks to pick up a bit of financial advice while not putting in as much effort as a course, or even reading a book, would take.

Finance Apps that Improve Your Financial Literacy

Today, many apps help you to learn about your personal finances as well as finance in general. This includes topics like budgeting, spending control, saving, debt management, credit score understanding, investing and more.

Millennials have taken most of their lives online or in their hands, literally, with smartphones. As a result, several useful apps have come onto the market designed to improve financial literacy one action at a time. Take a look at some of the most popular apps available for guiding you down a better financial path.

→ Pocketsmith

Pocketsmith helps you to control your current spending habits as well as see what your financial future looks like with your current spending and earning patterns. The app helps you to learn more about your personal finances by having you organize them in an understandable manner. By shedding light on your financial picture, Pocketsmith can help you get to where you want to go.

Pocketsmith works by starting with your past and building an understanding of your spending patterns and behavior so you can identify areas to target for improvement. From there, it shows your present actions through bank transaction feeds to help see immediate steps you can take and how you progress.

Finally, after enough data has been gathered by the app, Pocketsmith allows you to look into your financial future, whether that is 6 months or even 10 years from now. By extrapolating decisions you make today into the future, the app can forecast your financial picture if you continue to make financially literate decisions.

→ Meet Tally

MeetTally acts as an automated debt manager working on your behalf to lower your credit card payments. It does so by monitoring your linked credit cards and assessing your payment history to understand if you’d be better served through consolidating your high cost credit card loan with a loan from Tally.

Essentially, Tally acts as a credit card consolidation app, which makes it easy for you to stay on top of your credit card balances. It does so by offering you a line of credit with a lower interest rate than you likely paid on your credit cards. This arrangement makes it easier to save money, manage your cards and pay down balances faster.

The app keeps track of bank and store credit cards, meaning it tracks your due dates, minimum payments and APRs. Based on this information, Tally calculates the best payment strategy for paying off your credit cards every month.

As an additional feature of the app,Tally offers late fee protection to prevent overdraft fees or other costly charges credit card companies might assess for a late payment. So long as you remain in good standing with Tally, you won’t need to confront a late fee on a linked credit card again.

→ Credit Karma

Credit Karmapairs well withTallyto monitor your credit score as you make timely payments and reduce your credit utilization rate. This information can be useful when it comes to finding a mistake on your credit report and wanting to take action to resolve the problem. By identifying this issue early, you may prevent yourself from suffering serious damage had this error remained on your credit history for years and gone uncontested.

Further, Credit Karma provides monitoring alerts if something unexpected happens or you have an event occur which might impact your credit. Credit Karma sends you alerts if anything major impacts your credit like an inquiry, a late payment, or some other event impacting your credit. Having access to this information on a timely basis can help you to build and manage your credit for your gain.

To make money, the service offers you free access to their credit scoring and monitoring services and offers you tailored credit card and loan products they believe might suit your needs. In exchange for providing you the free credit services, they have monetized their service through these affiliate offerings.

By pairing Credit Karma with an app like Tally, you can steadily see your credit score improve alongside your personal finances, allowing financial opportunities to open up to you.

→ Acorns

has become a very popular financial wellness app with Millennials. The service comes for free if you are enrolled as a student using a .edu email address or are under age 24. This benefit makes the app a great fit for young adults beginning their investing journey and learning how to make smart financial decisions with their money.

Typing your typical spending behavior to investing could should the interconnection of your financial actions and why you should always make sure to set aside money for the long-term through investing. Even if it only starts as a small amount contribution by contribution, with enough time and patience, the tiny acorn can grow into the mighty oak.

The main feature of the ability to connect a debit or credit card and have the app “round up” your purchases and invest that money automatically on your behalf. To grow this investment account quicker, you can also establish automatic deposits.

Finally, to leverage those “round up” purchases, Acorns offers a “found money” feature where additional money deposits into your account when you shop with Acorns’ partners.

is a good fit for young adults who want to invest small amounts incrementally and need help setting aside money to do so.

→ M1 Finance

offers to simplify investing with its robo-advisor functionality. The service does not charge fees for managing your assets, but rather, makes money from offering other services or earning interest on un-invested cash.

allows you to select the specific stocks and

M1 Finance also offers the ability to buy fractional shares, meaning if your desired stock carries a high share price (e.g., Google, Amazon, Berkshire Hathaway Class A, etc.), M1 Finance allows you to a smaller fraction of the stock on the platform.

As you have your account

To learn more about other useful apps for empowering you to make better financial decisions, I also have a full list of today’s top financial apps for smarter money management. Further, consider reviewing that list as well as the best investments for young adults to improve your financial literacy.

Other Financial Reading Resources

The United States government wants to help its citizens learn more about personal finance. Therefore, congress made April “Financial Literacy Month,” and there are financial resources available on government websites. Check out MyMoney.gov for a variety of financial resources.

This site contains sections geared towards youth planning for the future, educators looking for lesson plans and teaching tips, and researchers wanting datasets and research reports.

Once you have developed your base understanding of finance, you can increase your finance knowledge by reading the finance sections in newspapers.

Billionaire Warren Buffet usually reads six newspapers each day. These typically include The Wall Street Journal, The New York Times, USA Today, The Financial Times, The Omaha World-Herald, and American Banker. It can benefit you to read both about local and global finance.

Benefits of Financial Literacy

→ 1. Promotes Self-Sufficiency and Financial Stability

Stated simply, possessing even basic financial literacy helps people to become self-sufficient and able to achieve financial stability in their lives. Such actions include saving money, distinguishing between simple wants and needs, managing a budget and debt burden, paying their bills in a timely manner, buying a house to call home, financing a college education, and planning for a safe and secure retirement.

→ 2. Makes Sound Financial Decisions

Financial literacy provides people the chance to create a reasonable and realistic roadmap which can take them through their daily lives and routines and lead to sound financial decisions.

→ 3. Empowers People

Further, financial literacy empowers people with better tools and financial resources at their disposal. By developing an understanding around financial literacy topics like credit, interest rates, and investments, people find them less intimidating. This leaves informed people at an advantage as compared to those who lack this basic financial understanding.

However, this does not require a population of well-heeled financial specialists. Instead, simply understanding the basics can motivate people to ask questions and find the best options available. Some common areas of personal finance people would want to understand conceptually include:

  • how interest rates work,
  • how saving money can compound over time,
  • the differences between stock and bond investments,
  • the primary factors determining your credit rating

→ 4. Reduces Stress

By having a solid handle on these basic topics, this will also go a long way toward decreasing the stress level of individuals. When people are well versed and understand the current state of their personal finances, this provides them with the information they need for taking action, modifying their investment portfolio, or continuing with their current strategy.

→ 5. Guards Against Fraud

Another benefit of financial literacy comes from reducing the risk of becoming a victim of identity fraud. Through understanding your finances better, you can quickly identify red flags for garden-variety fraud. Some tactics might come across as easy to believe or too good to be true and will sound the alarm in your head when you see how out-of-sync these claims being sold or offers being pitched might be. They likely are and are usually just meant to get you to surrender your financial information.

Having enough knowledge of financial topics can help you to recognize these red flags and seek out help from a trusted advisor before moving forward with any offer or solicitation.

As you build this financial foundation and begin to see results, consider monitoring your progress through a free net worth tracking app like Personal Capital. The app provides a comprehensive net worth tracking dashboard including breakouts of investments, bank accounts, credit cards, liabilities and real estate assets. Simply connect your financial accounts and see how it builds a detailed breakdown of your net worth and monthly cash flows.

Learning Financial Literacy at an Early Age

When it comes to learning, you continually build on the knowledge and information you have gathered and learned in the past. The same concept applies to personal finance. Due to this dynamic, starting at an early age allows for a greater potential return on your financial knowledge as you continually learn more with the passage of time.

If you know how your money works before spending it, you will make better decisions now and in the future. With enough of these improved decisions, you can begin to see results through practiced application. Sadly, in the current state, financial literacy for students has not become a priority for many schools across the country.

These basic money management skills could go a long way toward helping kids understand the burden of student loans, credit card debt, or other poor financial choices. In truth, we often only understand the value of a dollar after we need it or after we have spent it. What usually results is an inefficient resource allocation, or worse, drowning in a sea of debt.

To change this pattern of behavior, focusing on early financial literacy education would allow individuals to develop a healthy relationship with money. Further, they would learn the importance of earning, saving, and managing their money. In turn, this would lead to a society of financially-responsible people making better money decisions. Several financial apps for young adults help to build this financial literacy.

Armed with the appropriate information to make wise decisions, people can smartly decide how to pay for college, a vehicle, or even a mortgage on a home. They would also know the financial and mental burden of accumulating too much debt, making costly purchases beyond our means, and falling prey to high-interest predatory lenders.

In truth, you should not need to experience a financial misstep to benefit from it down the road. If we can start teaching financial responsibility to our children, they will grow up knowing sound financial skills and become adults knowing no other way than being financially responsible.

How to Become Financially Literate: Learn by Doing

One of the best ways to improve your financial literacy is to give yourself a reason to learn it. Want to learn about stocks? Buy some small stocks or fractions of more expensive stocks (the Robinhood app allows you to try fractional investing while Webull allows you to paper trade or simulate what would happen with buying and selling stocks without risking real money).

You’ll find reading about stocks significantly more interesting if you’ve invested in something. Either choose to paper trade on a platform like Webull or just start small and don’t invest more than you can afford to lose.

As for budgeting and debt, have you recently read about an effective method for debt management? Try it out and see if it works for you. If you’ve read endless financial literacy articles about budgeting, try making one for yourself. It might not be perfect on the first attempt, but you’ll definitely learn something in the process and can make adjustments later.

Everyone is affected by their finances and that means we should all make an effort to be financially literate. Whether you want to become the next Warren Buffett or just become more financially stable, you’ll need to start by learning basic financial terms and concepts. The sooner you work to improve your financial literacy, the sooner it’ll lead to financial gains and real wealth.

About the Site Author and Blog

In 2018, I was winding down a stint in investor relations and found myself newly equipped with a CPA, added insight on how investors behave in markets, and a load of free time. My job routinely required extended work hours, complex assignments, and tight deadlines. Seeking to maintain my momentum, I wanted to chase something ambitious.

I chose to start this financial independence blog as my next step, recognizing both the challenge and opportunity. I launched the site with encouragement from my wife as a means to lay out our financial independence journey and connect with and help others who share the same goal.

Previously published on Youngandtheinvested.com.


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How to improve your credit score for loan applications

You can use an online credit reference agency such as Equifax, Experian or Credit Karma to check your credit file for free. On your credit file, you will …

Applying for loans can be stressful, especially if you have a low credit score. Whether you’re applying for car finance, a mortgage, credit card, personal loan or any other type of credit, you’ll usually need a good credit score to be accepted for a loan.

If you’ve ever been refused car finance in the past or any other type of loan, you’ll know how disheartening it can be. Your best chance of being accepted for different types of loans is to increase your credit score. There are a few easy ways in which you can increase your credit score.

Check your credit file

The first thing you should do before you apply for any sort of loan is check your credit file. Before you can start rebuilding your credit score you should know where you stand. It can also be surprising if you don’t know how good or bad your credit is. You can use an online credit reference agency such as Equifax, Experian or Credit Karma to check your credit file for free.

On your credit file, you will get access to a credit score, personal details, a list of your credit accounts, any financial partners, public record information such as County Court Judgements, electoral roll information and previous/current addresses. All of this information can be viewed by yourself and is sometimes available to some potential lenders, depending on the type of search they provide on your credit file.

Improve your credit score

Register on the electoral roll

Many people don’t know that this is an easy way to increase your credit score. In the UK, the electoral roll is an official list of people in a certain area who are entitled to vote in an election. Even if you don’t care about voting, being registered on the electoral roll can increase your credit score. This information is provided on your credit file and lenders use this info to very that you are who you say you are and your current address. Lenders tend to favour people who don’t move around as much so this can strengthen your applications.

Pay all your bills on time

This may seem simple, but it can be quite hard if you have had trouble in the past making repayments on time. However, even a few months’ worth off meeting all your financial deadlines can increase your credit score. Your credit score is all about future predictions, so showing evidence to potential lenders that you are a responsible borrower can work in your favour. If you struggle making repayments, why not set up direct debits for the day after you get paid or use payment reminders on your phone or calendar? You should also try to make your payments in full as making the minimum payment requested on credit cards or store cards may indicate to lenders that you are struggling to handle your current credit.

Check your file for mistakes

As mentioned, the first thing you should do is check your credit file. When you check your file, you should make sure all your information listed is accurate and up to date. Even an incorrect address history or spelling mistake can affect your credit score. You should also look for any fraudulent activity. If you suspect any fraudulent activity, you should contact your credit reference agency as soon as possible. Your identity could be used to build up debt which you will be liable for. You should also ask the credit reference agency to make a note of any corrections on your credit file to make it clear that the activity was not your fault.

Check for any financial partners

You can take out joint credit with other trusted partners to strengthen your credit applications. For example, many people who are search for bad credit car finance many be worried about being accepted so providing a joint application can increase your chances of being approved. If you have taken out credit in the past with someone as a joint application, you may still be financially linked. If you no longer have an open application with someone else, it’s best to disassociate yourself. If your financial partner has credit difficulties, this can also drag your score down too. You should contact the credit reference agency to make a note of the dissociations on your credit file.

Keep your credit utilisation low

When you take out credit, you will have a credit utilisation which is the amount of available credit which you actually use. For example, if your available credit is £1,000 and you’ve used £500, this means your credit utilisation ration is 50% Usually using less of your available credit can be seen a positive thing to lenders. As a general rule of thumb, you should only use around 30% of your available credit. This indicates to lenders that you are responsible with the money you have borrowed.

Don’t make multiple credit applications

When you apply for any sort of credit, potential lenders will usually check your credit file. If you are shopping around for the best loans, it’s best to stick to companies who only provide a soft search on your file. A soft search is recorded on your credit file but won’t affect your credit score and isn’t visible to lenders. A hard search however is recorded on your credit file so lenders will be able to see when you have been declined for credit. Multiple hard searched in a short space of time can lower your credit score and affect your chances of being approved for loans.

Consider a credit building card

If you have a low credit score because you have no credit history, you could consider a credit building card. A credit building card is designed for people who have little or no credit and can also help people with bad credit. You can use these cards to make a few payments each month and then pay them back on time and in full, this can provide strong evidence that you are able to make your repayments. However, you should only consider a credit building card if you are confident you can make your payments on time. Never take out a credit building card if you are unsure about repayments as this may result in more debt if you can’t keep on top of your payments.

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Credit Scores, Credit Reports & Credit Check Services Market to Witness Massive Growth …

Experian, Equifax, Trans Union, Identity Guard, IdentityForce, PrivacyGuard, Credit Sesame, MyFICO & Credit Karma. Credit Scores, Credit Reports …

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Credit Scores, Credit Reports & Credit Check Services Market Outlook, Demand, Key Player and …

‘The primary purpose of the report is to highlight the many important global Credit Scores, Credit Reports & Credit Check Services market dynamics …

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Experian, Equifax, Trans Union, Identity Guard, IdentityForce, PrivacyGuard, Credit Sesame, MyFICO, Credit Karma

Segment by Type:

  • Credit Scores
  • Credit Reports
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How to read a credit report to find out if you’re in good standing

You may also be able to access free copies of your credit reports if you’ve recently been turned down for financing, and both Credit Karma and Credit …

Your credit reports play an important role in your financial life. Whether you are applying for a loan, auto insurance coverage, or a new apartment, the condition of your credit could either make your life significantly easier or a lot more difficult.

Because your credit matters so much, it’s important to keep a close eye on your credit reports from all three major credit bureaus — Equifax, TransUnion, and Experian— and learn how to read a credit report.

You can claim a free copy of all three of your reports once every 12 months from AnnualCreditReport.com. You may also be able to access free copies of your credit reports if you’ve recently been turned down for financing, and both Credit Karma and Credit Sesame allow you to check your score for free at any time.

By checking your credit often, you’ll be better equipped with the knowledge you need to earn and keep a good credit rating. You’ll also be in a position to respond quickly if any fraud or mistakes appear on your reports. (Unfortunately, it happens.)

How to read a credit report

Most credit reports are broken down into sections that make your information easier to understand and digest. Different reports might display the following sections in different sequences, but as long as you know what to look for in each, you should be able to understand your report regardless of the order in which the sections appear.

Here’s a look at what you might expect to see if you access a standard copy of your own credit report online (aka a consumer disclosure).

1. Personal information

The first part of your credit report is usually the personal information section. It contains details like:

  • Name
  • Present and former addresses
  • Date of birth
  • Social Security number
  • Present and former employers

The information above won’t have an impact on your credit scores, but you still want to make sure it’s accurate. A wrong address, for example, might be a minor mistake. But it could also indicate a bigger problem, like identity theft or a mixed credit file.

2. Accounts

The second section of your credit report typically lists your accounts — both open and closed. This is actually one of the most important sections of your credit report. The information contained here can have a big impact on your credit scores in several ways.

In addition to listing your accounts themselves, this section of your report contains details about how you’ve managed those accounts over time. Those details may include:

  • The date an account was opened and (if applicable) closed
  • Your payment history each month (on-time, 30 days late, 60 days late, etc.)
  • Current balance
  • Credit limit
  • Original loan amount
  • Current status (current, past due, etc.)

Let’s say your report shows a credit card that’s five years old. You’ve never paid late and your balance-to-limit ratio (aka credit utilization rate) is low. That account is likely helping your credit scores. On the other hand, if your report shows a card with habitual late payments and a high balance-to-limit ratio, your scores are probably taking a hit as a result.

3. Collections and public records

Hopefully this section of the credit report will be empty. However, if you’ve had accounts that have been sold or turned over to a collection agency for non-payment, this is the section where they will appear on your report.

A collection account on a credit report should contain the following information:

  • The name of the collection agency
  • The original creditor’s name
  • The balance on the account

Currently the only public records included on credit reports are bankruptcies.

If you do have collection accounts or bankruptcies on your reports, they’re likely having a negative impact on your credit scores. Thankfully, as negative items grow older, any impact on scores lessens over time. Best of all, after seven to 10 years, federal law requires most negative information to be deleted from your credit reports entirely.

4. Inquiries

The final part of your credit report is the inquiry section. It contains a list of who has accessed your credit report in the last 24 months.

“Soft inquiries” occur when you check your own credit and will only appear on a report you pull yourself. They don’t show up on a lender’s credit report.

Hard inquiries,” like those that occur when a lender pulls your credit as part of an application, have the potential to damage your credit scores slightly. However, even though these inquiries may remain on your report for 24 months, they’re only factored into your credit score for 12 months.

Disputing incorrect information

Unfortunately, errors and fraud wind up on credit reports all the time. This is the primary reason why checking your reports frequently is so important. Remember, if you discover information on a credit report that isn’t correct, you have the right to dispute it.

Need help disputing items on your credit report and improving your score? CreditRepair.com can help »

Related coverage from How to Do Everything: Money

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