Financial Literacy for Beginners – Essentials for your Family

Financial literacy for beginners, individuals, and families is critically important and an essential first step to achieving your financial goals. In this post, we’ll cover the basics, what it means to be financially literate, and outline some subjects you and your family can start reviewing and applying today!

Basic Financial Literacy for Beginners

My friend, this post and concept is for everyone! Think of financial literacy for beginners as a starting place for individuals and families alike. With it, you and your family will be better able to set, work towards, and accomplish your money and finance goals.

What is Financial Literacy and Why is it Important?

Providing and caring for one’s family, practicing responsible financial habits, and growing your financial knowledge are all part of being financially literate. The benefits are far-reaching and broadly observed today in your family, your children, and your financial stability. Additionally, we can also see the future benefits in retirement, and in how well our children manage their finances as they grow. Learning and applying financial literacy will change your life for the better!

What does it mean to be Financially Literate?

According to Investopedia, financial literacy, the foundation to personal finance basics, is “the ability to understand and effectively use various financial skills.” This broad definition does a good job pointing us in the right direction.

What is the Best Definition of Financial Literacy?

Financial literacy is similar to Mêtis because it prepares users for the unknown, protects us and our families from fraud and financial mistakes, guides and directs investment choices, and otherwise aides and supports us during our financial journey.

Becoming financially literate takes time, and it is worth the dedicated effort. With it, you’ll be well equipped to handle financial challenges, provide for your family, and weather the financial storms of life.

Financial Literacy Personal Finance Basics

With these broader definitions in the front of our minds, let’s further expand the context by understanding the opposite side: financial illiteracy. Remember, by default, we are all financially illiterate beginners. Don’t worry my friend, we all have to start somewhere, so let’s start together!

Financial Illiteracy

As part of this conversation, it is also prudent to understand the opposite side: financial illiteracy. This is defined by the National Financial Educators Council as “lacking the skills and knowledge on financial matters to confidently take effective action that best fulfills an individual’s personal, family, and global community goals.” I wouldn’t wish this on anyone! The fact is, our day-to-day financial choices add up. Altogether, they can make or break us.

Are you struggling with your past financial choices, or perhaps facing the money-related challenges of today? Take a minute, do some additional research. Replace financial illiteracy with financially literate choices. Let’s work together and build, enhance, or otherwise promote financial literacy in our households!

Causes of Financial Illiteracy

Lack of financial literacy, being financially illiterate, can come from any type of background, experience, or life event. This post is proactively focused on how to become financially literate. Unfortunately, there isn’t a magic pill to fix it all, and flipping a switch is also out of the question. Not to worry! The first part of cultivating financial literacy is calling out the problem, and deciding to do something about it. Alternatively, consider what happens if we just deny that we have a problem. Does that make it all better? Far from it. My friend, take it from the hard lessons I’ve learned and combine your personal experience with those of others – pretending away financial illiteracy is not a good path. Face it head-on! Don’t wait for someone else, you are your strongest advocate.

Effects of Financial Illiteracy

As one can easily imagine, the effects reach far and wide, across the spectrum of financial topics. Financial illiteracy leads to myriad problems and impacts families across the US. It includes the general inability to manage and control finances, prepare for unexpected events, adequately save for retirement, or otherwise make poor financial choices.

More immediate effects include damaging strains on relationships and poor spending choices which can lead to high credit debt and poor credit scores. If unabated, financial illiteracy can manifest in heavy, crippling loads of debt, and could even lead to bankruptcy, and foreclosure.

However, let’s not dwell on where we’ve been! Regardless of where we’ve been in our financial journey, let today be the day that we take a step in the right direction, towards financial literacy, and towards a more financially secure life.

Financial Literacy Topics for Beginners

A proper sense of humor, a positive mindset, and an eagerness to learn are all important to becoming financially literate. As suggested, building financial literacy for beginners starts with taking ownership of your situation and taking action.

Are you ready? Here are some ideas on ways you can get started! You’ve got this.

Essential Financial Literacy Subjects to Master

For starters, I’d like to promote the idea that Financial Literacy is an ongoing, life-long process. Just like education, there is no limit to what we can learn! With that said, having a starting place is often helpful (I know it was for me!) and gives us an idea of subjects we can learn more about. Please, don’t think of this as an exhaustive list, rather, it is the starting line:

• Create and Maintain a working Budget
• Establish an Emergency Fund
• Use Sinking Funds to Prepare for Annual Expenses
• Anticipate and Prepare for Regular and Irregular Expenses
• Adequate Insurance (Life Insurance, Auto Insurance, etc.)
• Managing and Current Debt Obligations
• Responsible Credit Card use (or completely avoid)
• “Know thyself” and understand Financial Biases
• Build Credit, Monitor, and Review Credit Reports
• Delay Consumption, and Prepare for Retirement
• Leverage HSA or other method of preparing for Medical Expenses
• Save for College/ Trade School/ Vocational training for your children (529 Plan)
• Invest and Manage your Finances through periods of economic uncertainty
• Understand and apply your Risk Profile to Investment selections
• Understand and prepare for Taxes obligations
• Carefully consider adding Bitcoin to your portfolio
• Know how to calculate and improve Net Worth
• Cultivate Mêtis in your Money Matters, and grow your financial knowledge base!

Promoting Basic Financial Knowledge in your Family

Understandably, society places an emphasis on providing an education for your children. However, financial literacy is not necessarily part of the default package. Like other parents, we wish the best for our children. My wife and I have made a point to include financial literacy in that effort. Often, life provides basic and valuable lessons along the way. Set up your children for success, and promote good financial habits early and often in your household.

Raising Financially Literate Children

Here are some ideas that have worked for us! I hope these serve you and your family well. I will say that we try to avoid creating a financially stressful situation for our young children (don’t want them to feel like they’re a strain on the household, etc.) so we avoid the exact costs of things and focus instead on the subjects, and “why” behind decisions.

Teaching and Modeling Financial Literacy for your child

Remember, all families are different so feel free to pick and chose what works well for you and your house. Best of luck, my friend!

• Establish an allowance for your child, and teach them the value of hard work. For us, we offer them the chance to earn more for additional tasks beyond the daily household chores. After working hard, they are less interested in spending their money on junk.
• Teach them about giving and charity (example: we have our children buy Christmas gifts for one another from their own money; we also encourage them to give to those who are in need (even if it is only 25 cents at this point)). 
• Take your child with you grocery shopping, show them the deals, outline the effort of planning and preparing a meal. Some stores have better deals for certain food groups, why not point that out and talk about economics?! 
• Explain how a budget works, and how to use it each month. With time, foreign concepts become more clear when it is their own money.
• Outline the differences between credit and debit cards, checking accounts, etc.
• When it comes up, point out predatory marketing practices. For example, review ads together and show them the fine print (our kiddos don’t care about the actual words yet, but the concept of shady deals resonates)
• Discuss the annual family trip, and discuss what goes into saving for it.
• Explain how savings build over time and the power of compounding interest.
• Ready for more? See if opening a Roth IRA for your child makes sense.

Closing thoughts on Financial Literacy for Beginners

No matter where we’ve been, we can all benefit from building financial literacy in our lives. Consequently, our family stands to benefit from the commitment to become financially literate. Our future will reflect the efforts (or lack thereof) accordingly. This post covered some ways you can take action and drive positive change into your financial routines. While we’re all in different places on our financial journey, I hope this post was thought-provoking and serves you and your family well! Best of luck, my friend.