Financial literacy focuses on the ability to manage personal finance matters efficiently, and it includes the knowledge of making appropriate decisions about personal finance, such as investing, insurance, real estate, paying for college, budgeting, retirement, and tax planning. Those who understand the subject should be able to answer several questions about purchases, such as whether an item is required, whether it is affordable, and whether it’s an asset or a liability. Financial literacy education should also include organizational skills, attention to detail, consumer rights, technology, and global economics because the state of the global economy greatly affects the US economy.
This field demonstrates the behaviors and attitudes a person possesses about money that is applied to his daily life. Financial literacy shows how an individual makes financial decisions. This skill can help a person develop a financial road map to identify what he earns, what he spends, and what he owes. This topic also affects small business owners, who greatly contribute to economic growth and stability.
Financial illiteracy affects all ages and all socioeconomic levels. Financial illiteracy causes many people to become victims of predatory lending, subprime mortgages, fraud, and high-interest rates, potentially resulting in bad credit, bankruptcy, or foreclosure.
The lack of financial literacy can lead to owing large amounts of debt and making poor financial decisions. For example, the advantages or disadvantages of fixed and variable interest rates are concepts that are easier to understand and make informed decisions about if you possess financial literacy skills. Based on research data by the Financial Industry Regulatory Authority, 66% of Americans are financially illiterate. They lack the basic skills to reconcile their bank accounts, pay their bills on time, pay off debt, and plan for the future.