Financial Literacy
The ability to understand and apply financial concepts to make informed money decisions.
What is Financial Literacy?
Financial literacy is the knowledge and skill set needed to understand financial concepts — budgeting, saving, borrowing, investing, taxes, and insurance — and apply them to make sound personal financial decisions. Research consistently shows that financially literate individuals make better decisions across the lifecycle: they are more likely to save for retirement, carry less consumer debt, diversify investments, and plan for emergencies. Low financial literacy is associated with higher debt, insufficient retirement savings, and susceptibility to financial fraud. The CFPB, FINRA, and many nonprofits offer free financial literacy resources.
Example
A 2022 FINRA Foundation survey found that only 34% of Americans could correctly answer at least four of five basic financial literacy questions covering interest, inflation, diversification, bond pricing, and risk — indicating significant knowledge gaps.