There’s the famous adage that says, “money makes the world go round.” While there is much more to life than money, it is worth paying heed to the importance of money and financial management. The ability to understand and manage finances can have major repercussions across just about every area of one’s life.

Yet, unfortunately, many people never receive proper education regarding important financial decisions and skills. Studies aiming to test the general population’s awareness of financial literacy often yield very disappointing results. Some of them suggest that only around 30% of Americans have an understanding of even the most basic facets of financial management, such as inflation and interest. Researchers suggest that this lack of financial awareness contributes negatively to the overall economy of a country, demonstrating the importance of a thorough education in these matters.

Changing this and increasing overall financial literacy is key to empowering the population to make better decisions about their finances. This will have a massively positive effect on society, with effects ranging from economic stability to increased social security. The earlier this kind of financial education in a person’s life begins to take place, the better. An early education gives people a longer time over which to hone and develop themselves with the knowledge and skills they need to understand and manage their own decisions. Unfortunately, many people find the idea of a solid financial education rather intimidating, but this should by no means be the case.

What is meant by financial literacy?

Financial literacy is the ability to understand and navigate the different facets of money management and the economy. This includes getting acquainted with the jargon and terms used to talk about money and financial matters. Learning the meaning behind terms related to personal finance - such as investment, interest, and mortgages - is an important first step to making sense of financial education. Terms related to the broader economy, such as inflation, deflation, and recession, are important for understanding the bigger picture of how money works.

True literacy in money management needs to include both micro-level skills and macro-level understanding. An awareness of both will play a large role in avoiding poor financial decisions throughout life.

Micro-level finances and personal money management

At the smallest scale possible, there is financial education on the personal level. Learning about money management at this level can consist of something as simple as simple tips and tricks to saving money and being a wise spender. Specific skills that you may wish to learn are things like budgeting and self-reporting on your spending. Keeping track of your income and outcome, as well as forecasting for your future expenses, is a great basic step towards improving your personal money management.

This is just one of the major benefits of financial literacy because it equips us with truly practical skills that can yield instantly positive results. Learning even the most basic budgeting skills can save you little amounts that build up quickly!

Personal money management also includes the ability to save, pay taxes, and engage with banks. Learning to save and pay one’s taxes properly is highly important should you ever wish to apply to the bank for something like a mortgage. In order to buy a house, you will generally have to apply to the bank for a mortgage loan and demonstrate proof of good credit history. The impact of financial literacy throughout a person’s life can mean all the difference when it comes to reaching milestones like home ownership.

Getting to grips with the economy

A comprehensive sense of financial literacy and education in matters of money will include learning about the wider economy. This includes learning about the structure and movements of the broader economic system. Some of the most important concepts to acquaint oneself with in this area of money management are:

•  GDP
•  Unemployment rates
• Inflation
• National debt
• Recession
• Deflation
• Market bubbles
• International tariffs and quotas

For those new to working with a financial set of terms, these concepts may at first appear intimidating. However, nowadays, it’s incredibly easy to access tons of free resources that can break down these big concepts into manageable explanations. Understanding these concepts will help you to understand the reasons why financial cycles move in booms and busts and help you when it comes to deciding on the economic policies you may wish to vote for at the polling booth.

Being able to recognise macro-level financial trends, such as recessions and inflation, helps leave you aware of what you can do to make the most of the wider economic situation. Knowing how your personal finances may be affected by oncoming economic trends can help you be able to make prescient decisions such as to buy or sell that others without a financial education may miss.

Ideally, our education system would ensure that every individual receives the level of financial education they need to be guaranteed to make informed choices about both their personal finances and the general economy. Unfortunately, this is far from the case. However, by taking the initiative and choosing to educate yourself, you can overcome this and put yourself on the right track to making better financial decisions!

About the author

Dr. Kylen is a professional writer at PapersOwl and promotes financial literacy in society. Having worked for several years as a financial advisor, she has since worked in lending her expertise to online writing services that help students get to grips with tough concepts and put together top-notch papers.