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Financial Literacy Definition[emailprotected]2024-03-26T20:01:33+00:00
Financial Literacy Definition
The literal definition of financial literacy is understanding the topic of money. Financial literacy represents one area of financial wellness. However, it takes more than financial literacy to make a meaningful difference in people’s lives. It takes a focus on behaviors, systems, sentiment, and making regular adjustments based on outcomes.
Financial literacy helps improve a person’s confidence, sentiment and may help them make better decisions. However, financial literacy alone does not guarantee financial security. That is the way the NFEC’s focus is on all aspects of a person’s financials: literacy, sentiment, behaviors, systems and planning.
NFEC Financial Literacy Definition
The financial literacy definition developed by the National Financial Educators Council:
Possessing the financial knowledge, behaviors, systems, team, and plan to confidently take effective action that best fulfills an individual’s personal, family, and global community goals.
– National Financial Educators Council
8 Other Financial Literacy Definitions
Financial literacy is the ability to understand and effectively use various financial skills, including personal financial management, budgeting, and investing. The meaning of financial literacy is the foundation of your relationship with money, and it is a lifelong journey of learning. The earlier you start, the better off you will be because education is the key to success when it comes to money.
Investopedia
The ability to make informed judgments and to take effective actions regarding the current and future use and management of money. It includes the ability to understand financial choices, plan for the future, spend wisely, and manage the challenges associated with life events such as a job loss, saving for retirement, or paying for a child’s education.
The Government Accounting Office (GAO)
The President’s Advisory Council on Financial Literacy defines personal financial literacy as “The ability to use knowledge and skills to manage financial resources effectively for a lifetime of financial well-being.
The President’s Advisory Council on Financial Literacy
The combination of knowledge, skills, attitudes and ultimately behaviors that translate into sound financial decisions and appropriate use of financial services.
The Center for Financial Inclusion
Personal finance describes the principles and methods that individuals use to acquire and manage income and assets. Financial literacy is the ability to use knowledge and skills to manage one’s financial resources effectively for lifetime financial security. Financial literacy is not an absolute state; it is a continuum of abilities that is subject to variables such as age, family, culture, and residence. Financial literacy refers to an evolving state of competency that enables each individual to respond effectively to ever-changing personal and economic circ*mstances.
Jump$tart
Financial literacy, also referred to as financial capability, means having the capacity, based on knowledge, skills and access, to manage your financial resources effectively. In other words, being financially literate means understanding financial concepts, such as budgeting, saving and investing, and knowing how to apply them in your daily life.
SmartAssets
Financial literacy is the aptitude to comprehend how to make sound financial selections so you can confidently achieve and grow your money. When you’re financially literate, you’re able to simultaneously allocate your income toward various goals – not just to ongoing expenses but also to savings, debt repayment, and a rainy day fund. You can circumnavigate the financial marketplace with self-assurance. And you have the tools to thoroughly investigate things like loans, credit cards, and investment chances.
Global Marketing Guide Financial Literacy Definition
Understanding of assets and liabilities. Understanding of cash flow and capital gains. Understanding of debt and taxes. Understanding of self-financial and investment decisions.
Rich Dad Poor Dad by Robert T. Kiyosaki
Defining Financial Literacy Topics
Although many financial literacy definitions exclude skill development, income, career, and entrepreneurship topics, the NFEC asserts that the ability to earn money forms a cornerstone of financial literacy. Without earnings, a person has no money to manage.
Core financial literacy topics include: financial psychology; savings, expenses, & budgeting; income, career, & entrepreneurship; education & skill development; account management & financial team; loans & debt; credit profile; economic & government influences; risk management & insurance; and investing & personal financial planning.
Defining Financial Literacy Standards for Learners & Financial Educators
When defining financial literacy, learning outcome standards are an essential piece for financial educators, learners, and organizations with financial literacy programming. These standards define guidelines that help improve financial capabilities and enhance the long-term outcomes of financial literacy programming. The NFEC defines financial literacy standards for both learners and educators, which you can access here:
Financial Literacy Framework & Standards for Learners℠ – High School, College, & Adult
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Kids Financial Literacy Standards℠ – PK – 8th Grade
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Framework for Teaching Personal Finance℠
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Educational Methodologies of Personal Finance℠
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How Can We Improve Our Definition of Financial Literacy?
We value your thoughts, and all contributors will be recognized.
Please note that we use the term “financial literacy definition” loosely. Personal finance takes more than just “literacy” to help people adopt money management processes that help them achieve their financial goals. Please consider these points when contributing your ideas.
Contribute to the NFEC’s Financial Literacy Definition 2.0
Additional Information
Is There a Best Definition of Financial Literacy
What is the best definition of financial literacy? Although each financial literacy definition is varied, most have similar components. Each of the financial literacy definitions listed refer to the importance of having the skill sets and knowledge to make informed decisions.
The National Financial Educators Councils financial literacy definition also adds in a psychological component. The NFECs’ advisory board, comprised of financial professionals and seasoned educators, feel this is a critical component. The NFEC states “A lot of people know what they should do; however a good majority freeze up when it comes time to make a financial decision. Most have the knowledge but lack the confidence to make the right decision and take action in a decisive manner. Since money is directly tied to peoples emotional state we feel including this component in our financial literacy definition is critical.”
Another unique portion of the NFECs’ definition is that it includes reference to a larger impact than just ones on personal financial situation. “Global community goals” were referred to and this correlates with the NFECs’ financial education standards that include social enterprise.
Most of the financial literacy definitions we examined either directly or indirectly refer to a state of changing economic environment. The Jump$tart financial education definition goes into detail by stating “Financial literacy is not an absolute state… Financial literacy refers to an evolving state of competency.”
The National Financial Educators Council provides financial education resources, promotes advocacy campaigns, and helps organizations build sustainable financial education programs. As thought leaders they produced the Framework for Teaching Personal Finance though a partnership with Danielson Group consultants to meet the specific needs of Financial Education Instructors and the National Financial Capability Strategy, which serves as a blueprint for organizations building financial education programming. Their national team of educators lead financial literacy classes and a variety of programming to promote financial wellness around the globe.
Older Financial Literacy Definition by the NFEC (2019 – 2022)
Possessing the skills and knowledge on financial matters to confidently take effective action that best fulfills an individual’s personal, family and global community goals.
We first developed our definition of financial literacy to guide our curriculum development team. Since then it has taken on a life of its own. Our financial literacy definition has been quoted by numerous publications and currently is Google’s Featured Snippet (meaning it was selected as the highest-rated definition over all others by Google algorithms). Your contribution is valued and appreciated.
For those with clients or students looking to learn about managing and improving their personal finances, or do so themselves, the NFEC offers the Personal Financial Education Certificate.
