How to Improve Your Financial Literacy (Without Falling Asleep)
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Several years ago, I realized that I didn’t know enough about how to manage my money. I budgeted and put money in my 401(k), but I knew that there was still so much out there I didn’t know. I visited the library one day and browsed the section on personal finance books. I picked out a few I thought were introductory level, took them home, and started reading. Today, I can honestly say that make better choices when it comes to my spending and saving thanks to picking up those first books and continuing to learn about personal finance.
So when I read in an article a few months ago that almost 60% of Americans don’t have enough savings to cover a $500 emergency, I thought I must not be the only one who was or is lacking in financial literacy. In fact, after doing some research, I found that 57% of adults in the US and 33% of adults worldwide are financially literate.
It’s understandable though. I was never offered a class on practical money management in high school or college. I wish it had been offered, because it probably would have been more useful than that trigonometry class I took. My parents were good role models but never sat me down to talk practical finances. It wasn’t my place as a child in the family. So it’s no surprise I had to piece together information and had holes in my financial knowledge. I’m not surprised that anyone else has holes in their financial knowledge either.
What does it mean to be financially literate?
Financial literacy is the ability to understand how money works in order to make informed choices about what to do with your money. That means having an understanding of budgeting, investing, managing debt, funding retirement, saving money, and how interest rates work. When you’re knowledgeable about these concepts, you can make better financial decisions to improve your overall life situation.
Conversely, financial illiteracy can result in making poor choices regarding money. I’m sure we can all think of a time when we or someone we know made a poor decision regarding money. It could have been paying the minimum on a credit card each month or making an impulse buy while out shopping. Financial illiteracy can have negative consequences.
If you’re thinking that knowing about finances is not for you, think again because everyone can learn basic financial concepts. I’ve heard people say that dealing with finances is boring. It's for the college educated, those who work in finance, or even men instead of women. That’s not true. Everyone can improve his or her financial literacy.
What are some ways to improve your financial literacy?
Nowadays, there are plenty of ways to improve your financial literacy without putting you to sleep. No longer do you only have dry textbooks to read. Check out the list below. You might find one or several modern ways that work for you.
Keep a budget
The best way to understand how your money works for you is to track it. Keep track of your income and expenditures for a month to start. You may be surprised at what you spend money on and how much you have saved at the end of the month. Then continue month by month to get a good picture of your habits and behaviors.
My favorite budget tracker is You Need A Budget. YNAB requires a monthly subscription to use. You can find many other tracking apps that are available for free with a Google search. If you like using an Excel sheet or pen and paper, the 50/20/30 method is one option and the envelope method is another.
Read financial materials
There is no shortage of financial materials available. Books are available on the topic for every level of knowledge. And nowadays, some of the books are really enjoyable reads. No more textbook style writing. Some of my favorites that I’ve read and/or written about include:
- I Will Teach You to Be Rich by Ramit Sethi
- The Millionaire Next Door by Thomas J. Stanley & William D. Danko
- Rich Dad Poor Dad by Robert T. Kiyosaki
- Your Money or Your Life by Vicky Robin, Joe Dominguez, & Monique Tilford
Read financial blogs
There’s no shortage of financial blogs to read either. Simply Googling “personal finance blogs” or “frugal living blogs” will give you probably hundreds of results to get started reading. You’ll also find that the authors cover a wide variety of topics and opinions within the larger topic of finances. For example, two of my favorite topics that I cover on this blog are frugal fashion and thrifting. You’ll find other blogs that focus heavily on topics such as early retirement or raising a family on a budget. It’s amazing how much information is already out there. Some of my favorites include:
Listen to financial podcasts
If you’re not up for reading or you have plenty of time in the car, try listening to some podcasts instead. A Google search of personal finance podcasts led me to over 15 recommendations within a few seconds. To tell you the truth, I don’t listen to podcasts often in my everyday life so I can’t recommend a favorite one here. But I do read Mint’s blog by Farnoosh Torabi and she has a podcast called So Money. I like reading her blog because she covers everyday money issues with helpful advice and a casual tone.
Take a financial class or workshop
Some community colleges and local organizations offer financial classes and workshops. In SF, San Francisco Financial Planning Day is a free event held once a year to teach people in the community about financial matters. The event consists of short presentations on different areas of finance including building a budget, investing basics, and estate planning. Financial planners are available for one-on-one consultations. Best of all, it’s free.
Check out online if something similar is held in your area. If not, a Google search can help you locate online classes for free or at a low cost.
Talk to others about finances
Talking about finances is a taboo topic, which it probably shouldn’t be seeing how many people are financially illiterate. Still, you can find people who may be willing to talk to you about financial matters. If you know of successful family members or friends that you trust, owners of businesses that you patronize, or even financial advisors, ask if these people would be willing to spend some time talking to you about how they got to where they are and what advice they could offer you.
You might be surprised how many people are willing to share their knowledge with you. Most people like talking to people who appreciate their knowledge and want their advice.
You don’t have to take everyone’s advice either. But if you can hear their stories and advice (the good and the bad), you’ll be more informed to make better decisions for yourself. Even better if you find yourself a financial mentor.
Be skeptical and double-check information
If a doctor recommended you undergo a major surgery, you would probably ask a lot of questions first. You might even get a second opinion and do your own research as to its risks and benefits. Likewise, it’s good to do the same regarding any financial information you receive. Be skeptical of financial information you’re given from one source until you can discuss it with others or research it for yourself.
One benefit of doing this is that you’ll learn why people offer the information that they do. We know that many news sources and websites have biases. People have their biases as well based on their experiences and opinions. When you determine the source of any information you’re given and any of their biases, you can better determine that information is a good fit for you.
Devote time to learning
Financial literacy is a skill that takes time and practice to improve. I used to find personal finance dry and boring. Truth be told, some aspects of finance still bore me to tears today. But I’m glad I picked up those first books and continued reading and learning. Even if it is sometimes boring, I think the payoff of greater financial literacy makes those hours of learning worth it. I hope you feel the same.
- Reading Corner: A Review of Why Smart People Make Big Money Mistakes
- Reading Corner: A Review of Happy Money
On a side note, I had planned to publish this post in April of this year to celebrate Financial Literacy Month. I ended up taking a break from blogging to start up From Pennies to Plenty and didn’t get to post it, much less finish writing it at the time. So I’m a little late to the game. But you know what they say, better late than never. It’s never too late to post a blog article that was meant for three months ago. And it’s never too late to start learning about finances to improve your financial literacy either. What do you think about starting today?
What are your recommendations for increasing your financial literacy? How can someone overcome being bored or intimidated by the subject? Have you had any standout or “aha” moments in your own journey towards financial literacy?