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Financial literacy is the understanding of how money works. While per definition it might seem a straightforward topic, in reality, it can be an iceberg of complicated chaos.
When we break it all down, financial literacy breaks into 5 key parts: earning, saving, investing, spending, and borrowing. While we take part in most of these actions on a daily basis, it is easy to go through the motions without having a clear understanding of what is going on behind these scenes and the true impact that our actions have. It can be likened to using your coffee machine. Imagine that you get up in the morning and want a fresh cup of delicious coffee. You walk to the machine, put in some water and some beans then press a button or two, and before you know it a fresh cup of brew sits there waiting for you. While it is not necessary to understand the inner workings of the coffee machine, it is essential to have a clear and thorough understanding of money if you wish to use it wisely and gain financial stability over time.
There is a saying that goes, “financial problems are not fixed with money, but with financial education.” So many times we have heard the stories of people winning the lottery only to lose everything in just a few years, or a relative dying and leaving a large sum behind, then, as soon as the inheritance gets divided up among the beneficiaries, it all gets spent in the blink of an eye. While these stories might not have the backing of much empirical data to support these claims, they certainly serve as a warning to those who lack the know-how of how to manage their finances properly.
So, it might seem like common sense that it is essential for everyone to spend time learning how to implement proper money management techniques; but common sense is often not that common. Without financial literacy, you are setting yourself up for a life of frustration as you may find yourself struggling to gain any monetary success, while making costly mistakes, and missing out on opportunity after opportunity.
The 5 key points of financial literacy
Financial literacy is the cornerstone of effective money management skills such as budgeting, saving, investing, and using credit wisely. It is an essential aspect of overall financial well-being and will help you to make informed decisions about money. Improving financial literacy and continuously developing it can lead to long-term financial stability and success. In fact, the more knowledgeable you are about financial matters, the more power you have to manage your finances in a way that will take your entire life to the next level.
Let’s break things down a bit by focusing on the five key ideas in finance: earn, save, invest, spend, and borrow.
Earn: Understanding how to earn money is the first step in financial literacy. This includes knowledge of different career options, how to negotiate a salary or raise, getting to grips with taxes you might need to pay, and understanding what an employer offers other than just money. That being said, your goal in working is not to become rich, as a job will never make you financially stable.
According to a study entitled “New Reality Check: The Paycheck-To-Paycheck Report” in which LendingClub and PYMNTS collaborated, they surveyed 3,495 people and found that 60% of US consumers live paycheck to paycheck. This shocking statistic shows that very few people actually have the ability to use their salaries in a way that will benefit them in the long run.
Robert Kiyosaki, the American entrepreneur, businessman, and author said, “I recommend to young people to seek work for what they will learn, more than what they will earn. Look down the road at what skills they want to acquire before choosing a specific profession and before getting trapped in the Rat Race”. Even this multi-millionaire is willing to admit that learning is the key.
Save: Saving money is crucial for financial stability and security. It allows you to have a financial cushion in case of emergencies, invest in your future, and achieve your long-term goals. Learning how to save money effectively, whether through budgeting or finding ways to cut expenses, can help you build financial stability and independence for many years to come.
But there is a catch. Just saving your money in an account at the bank or under your favorite pillow will inevitably lead to financial ruin. You need to spend time learning about how the financial system operates and how things like inflation can depreciate the buying power of your cash over time. Stashing your hard-earned money for a rainy day is good and well, but unless you are able to have it keep its value, in the long run, you’ll be screwed. This is where the next important aspect comes in: Investment.
Invest: Investing is a way to grow your wealth over time, or at the very least, allow your wealth to keep its value; but it can also be risky. In fact, learning about investing and how to do it properly might be one of the hardest aspects of financial literacy. There are many different forms of investment, be it a piece of land you buy in order to resell it at a profit, a 50-year-old bottle of wine sitting in your cellar appreciating in value, or purchasing stocks of Coca-Cola to get some delicious dividend payments, this aspect of financial literacy is perhaps the most important to building real wealth.
While I am sure you have a neighbor that will be more than willing to give you financial advice over the fence, it is important to get your information from a reliable source. There are a lot of sites online about how to get started in the investment world, but many of them might be less than reputed and trying to push people into dodgy dealings. A good rule of thumb when it comes to investing is that if it sounds too good to be true, it definitely is. Luckily there are sites like investfox that focus on giving people free information on how to invest in pretty much anything and can help you learn the strategies and terminology needed to succeed in the financial markets.
Spend: Spending money wisely is another important aspect of financial literacy. While for many this might be the most fun part of the whole ordeal, spending is usually the main culprit on the wide road that leads to financial ruin. Understanding how to budget, make informed purchasing decisions, avoid overspending, and focus on making your money work for you through wise investments, is crucial to becoming financially wealthy, healthy, and wise. By learning how to spend money responsibly, you can avoid financial setbacks and achieve your financial goals faster than you might think.
Spending in the right way is something that many people struggle with. When you are in the market for a car and see someone with the latest new BMW driving by, you might be thinking, “mhmm… I want a car like that”. While there is no issue with having nice new things, it might be a much better bet to pick up a well-kept second-hand BMW that is a model from a few years before, but costs significantly less. Wealthy people know that it is better to have something that works well and will serve you well for a long time to come than to spend a lot of money on shiny things that will be out of fashion by next season.
Borrow: Borrowing money, whether through loans or credit cards, can be a useful financial tool, but is often a dangerous path to go down for those who don’t have a clear understanding and plan. Learning how to borrow responsibly, including understanding interest rates and repayment terms, can help you avoid financial pitfalls and make informed borrowing decisions. Things like interest rates need to be well understood before making any decisions about borrowing.
Not all borrowing is bad though. Let’s say you take out a home loan and rent the place out to cover your payments on the loan, this can be a great way for you to pay off the loan, and eventually, you will own the property outright. But what happens if the renters move out and you can’t find anyone to move in, how will you continue to afford to pay the installments? It is very important to have a solid plan in place for every eventuality when making debt, and the only way to plan well is to know a lot.
Where to get the knowledge?
So, how can you learn financial literacy? One option is to turn to online resources. There is a great wealth of good information available on the internet these days, but along with the good, there are piles and piles of rubbish that is better avoided.
One recommendation for getting started is to head over to the investfox knowledge center, which has an education team dedicated to researching and writing about all things financial. The best part is that all the information is available free of charge and you don’t even have to jump through any of those pesky signup loops that plague the internet these days. From your first steps as a complete newbie to becoming financially literate and an experienced trader, investfox has the resources to guide you all the way.
Each article on the investfox bookshelf is written in a way that will be most accessible to the reader, and you will quickly be able to follow along and learn how to make a success of your financial life by simply reading through each section. Starting from financial terminology and working your way up to the point where you will be reading guides on advanced trading and understanding them as easily as a second-grade textbook your knowledge will grow at an astounding rate.
As an example, let’s take a look at one of the articles in the terminology section, as this is a great place to start. Here you will find a bunch of articles covering many topics, but let’s say you want to find out a bit more about bonds. By scrolling through the topics you will see one entitled “What are bonds and are they worth investing in?”. When you click on this topic it will open a page with everything you need to know about the bond market. This includes what bonds are, how the bonds are traded, bond characteristics, types of bonds, and, and, and.
Once you have read everything about that topic, move on to the next and soon you will find yourself a master of the financial craft.
While investfox is an incredible resource, it is also highly recommended that you spend time watching some financial shows on TV or through a streaming service. While at first, you might not understand everything, just like learning a new language, things will slowly start piecing together. While watching make sure to have a pen and paper handy, or go old-school and use a pencil if you want, and jot down any words or phrases that you don’t understand then go Google it. Investopedia is also a great place to look up financial terms you don’t quite get, but the explanations can often be overly technical, so looking them up on investfox to make sure you have a clear understanding is always a good idea.
Read, read, read. Whether it is books or the financial section of your local newspaper, it doesn’t matter, just keep taking in as much information as you possibly can. There are other places to get information such as Twitter or LinkedIn where you can read info coming from world-class financial experts who share their insights and views on a daily basis. Even investfox brings you regular updates through platforms like their LinkedIn page where informative articles are continually giving interested readers who are looking to improve their financial literacy a place to gain new knowledge.
As the American entrepreneur, Jim Rohn once said, “Reading is essential for those who seek to rise above the ordinary.”
Our entire world is run on the principles of finance and the monetary system, as such, you need to make sure you understand all of it as well as possible if you hope to ever be free and wealthy.
Financial literacy is a crucial skill that everyone should strive to acquire. It can help you make informed decisions about your money and achieve your financial goals. Online resources, such as investfox, can provide the education and support you need to learn and succeed in the financial world. Don’t be a financial fox cub – become one of the wise old predators of the financial markets with the help of investfox.
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