Financial Literacy for Beginners: 5 Main Skills to Master
We all know that understanding about money is crucial for a successful and secure life.
Yet, the stress and uncertainty about money is common with 42% of people globally expressing worries about meeting living expenses.
Meanwhile, 37% of adults around the world are just getting by as reported by OECD/INFE 2020 International Survey of Adult Financial Literacy.1
The findings highlight the widespread impact of financial stress in our daily lives. It indicates that adults around the world still need more knowledge about finance to feel more confident about financial management.
That’s why financial literacy is a crucial key to unlocking financial confidence and empowering individuals to make conscious decisions.
What Is Financial Literacy
Financial literacy is about having the knowledge and skills to make informed decisions about money. From budgeting and saving, to investing and retirement planning, financial literacy can help you make the most of your money in the long run.
Why Is It Crucial?
Understanding the fundamentals of money management is more important than ever. With the cost of living on the rise, it’s essential that you have a good grasp on how to manage your finances.
Financial literacy assists you in making financial decisions, such as budgeting, investing, and debt management.
Furthermore, understanding personal finance can help you plan for the future and lay a solid financial foundation for yourself and your family.
Despite this, from 2023 statistics, only 33% of adults worldwide are financially literate.2
This statistic highlights a concerning reality that a significant portion of the global population lacks adequate financial literacy.
Meanwhile, many people may think that financial literacy is only important to adults, which is not true!
It is encouraged for everyone to learn about money since they are young so that they can get used to healthy financial habits from the start. With this change, we can hope for more people to be financially literate and to lead economic growth.
Unfortunately, the current financial lessons taught in schools may not be sufficient to fully prepare children for adulthood.
In one of DeeMoney previous blogs, we have highlighted the increasing importance of financial literacy in schools.
If you want to know more about financial literacy for children, you can find more information in our "Further Readings" note at the end of this blog.
Things You Need to Know
While learning finance may seem daunting, it's not impossible to learn. We understand that with so many topics to cover, it's easy to feel overwhelmed learning about finance.
If you don’t know where to start. Here are 5 core competencies that help you achieve financial success.
1. Earning - Your Income Streams
This includes traditional fixed income sources like salaries and wages, as well as passive income sources like rental properties, investments, and dividends.
Understanding various sources of income can assist you in choosing a career, investment opportunities, and financial goals.
Examples of different income streams:
- Traditional fixed income
- Passive income
- Freelancing or side hustle
- Business ownership
2. Spending - Budgeting and Taxes
This aspect involves creating a plan for how you will spend your money based on your income, expenses, and goals.
Budgeting helps you track your expenses, avoid unnecessary spending, and save for future needs. Knowledge about taxes is crucial to ensure you can optimise your tax strategies.
3. Saving - Banks, Funds, and Investing
Saving is the foundation of building wealth. Understanding the different types of banks, such as commercial banks, credit unions, and online banks, can help you in choosing the right option for your needs and lifestyle.
Additionally, by comprehending various investment options like stocks, bonds, and mutual funds, you can increase your savings and achieve financial wellness.
4.Borrowing - Loans & Managing Debts
Though having debts may not be ideal, it is inevitable in some situations.
Rather than avoiding debt at all costs, it's important to gain a thorough understanding of debt management and loans in order to effectively manage your obligations.
One key aspect of borrowing is the knowledge of the different types of loans available, such as personal loans, student loans, mortgages, and credit card loans.
Moreover, it's important to learn how to manage debts responsibly.
For instance, Prioritise paying off high-interest debts first to minimise the overall interest payments.
Another good example is to avoid taking on excessive debt and only borrow what you can afford to repay comfortably.
5. Protecting - Frauds and Insurance
You also need to learn to protect your finances from frauds and unexpected events to maintain financial stability.
Likewise, understanding different types of insurance, such as health insurance, life insurance, and property insurance, can help you mitigate financial risks and protect your assets and loved ones in case of unexpected events.
While frauds and scams can be intimidating, there are always resources available to help you understand how these fraudulent activities work.
As part of our further read lists at the end of this blog, we have compiled information on 8 types of frauds and how you can stay safe from them.
Be sure to check it out to equip yourself with knowledge and protect yourself from potential scams.
How to Get More Financial Knowledge
Getting more knowledge in this area is not as overwhelming or challenging as many may expect – there are plenty of resources available to help you become more financially literate!
Taking a course on financial literacy can be an excellent way to learn the basics of managing money. These courses can be taken online or in person, depending on your preference.
Reading books on financial literacy can be a great way to get in-depth information on various topics related to money management. Look for books from reputable authors who specialise in personal finance and economics.
There are numerous online resources available that provide helpful information on financial literacy topics dedicated to providing helpful tips and advice on different aspects of financial literacy.
Events & Workshops
This can be a great way to learn from experts and interact with fellow learners. You can look for local workshops or seminars offered by financial institutions, non-profit organisations, or educational institutions.
For instance, DeeMoney & Bixie have organised "Becoming Independent: Financial Strategies for Your Future”.
This event is created to help individuals understand basic knowledge relating to money and finance before moving into adulthood and taking care of their own financial life, which are often not taught in school.
The event will feature workshops and speeches from financial experts, making it a valuable opportunity to learn practical financial strategies.
If you are interested in gaining valuable insights and enhancing your financial literacy, you can look for more detail and join here.
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Further Readings for Financial Literacy:
Financial Literacy in Schools Is More Crucial than Ever — Here’s Why
8 Types of Common Online Scams and How to Avoid Them
1 OECD/INFE 2020 International Survey of Adult Financial Literacy
2Financial Illiteracy Statistics 2023: A Look at the Financial Health