Prerequisites of Financial Literacy, Level of education, Numerical and Communication ability

Managing your money is a personal skill that benefits you throughout your life and not one that everybody learns. With money coming in and going out, with due dates and finance charges and fees attached to invoices and bills and with the overall responsibility of making the right decisions about major purchases and investments consistently.

Money in the Bank

Developing financial acumen starts with opening a bank account. Once you have a paycheck, set up direct deposit. This keeps your money secure and saves you from paying interest to cash advance companies which charge a percentage of your check.

Budgeting

One of the first building blocks of a successful personal finance plan is the ability to budget. Although it’s easy to understand, it’s also difficult to do because it requires a hard look in the mirror and a willingness to see what really stares back at you.

Budgeting requires that you analyze and, likely, change your spending habits. Instead of your money controlling you, you control your money. Develop habits to save, avoid financial crisis and maintain peace of mind.

Investing

To become financially literate, an individual must learn about key components in regards to investing. Some of the components that should be learned to ensure favorable investments are interest rates, price levels, diversification, risk mitigation, and indexes.

Borrowing

In most cases, almost every individual is required to borrow money at one point in their life. To ensure borrowing is done effectively, an understanding of interest rates, compound interest, time value of money, payment periods, and loan structure is crucial.

Taxation

Gaining knowledge about the different forms of taxation and how they impact an individual’s net income is crucial for obtaining financial literacy. Whether it be employment, investment, rental, inheritance, or unexpected, each source of income is taxed differently.

Awareness of the different income tax rates permits economic stability and increases financial performance through income management.

Personal Financial Management

The most important criteria, personal financial management, includes an entire mix of all of the components listed above.

Financial security is ensured by balancing the mix of financial components above to solidify and increase investments and savings while reducing borrowing and debt.

A Successful budget plan clearly defines:

• How to follow a monthly spending plan.
• Ways for lowering your monthly bills.
• How to handle accrued debt.
• Debt pay-off options like the snowball and avalanche methods.
• How to distinguish between short-term, medium and long-term goals.
• A breakdown of family needs.

Numerical and Communication ability

Learn about money matters

To start improving your financial literacy, the first step is to start reading everything about money matters, including investing, money management and finances. You can start with magazines and newspapers or look for books that teach financial literacy. You may also want to look for resources online as well as podcasts and webinars that teach financial literacy.

Use financial management tools

Another important step to gain financial literacy is to start using a financial management tool. There are many services available online and you can easily connect them to your checking and savings accounts, credit cards and mortgage to monitor your spending. Using these tools, you can create a budget and then monitor how effectively you’re staying within the budget.

Ask for advice

A financial advisor can answer questions about how to handle any high-interest credit cards and other debt. They can evaluate your specific situation and make recommendations for how to consolidate and manage your finances to pay off your debt.

Use your network

While there are limitless resources to help improve your financial literacy, look for resources within your own immediate network. Chances are that you have friends, family members or a CPA who can offer guidance or insight to help you improve your own financial literacy.

Learn to budget

Budgeting is a key component of financial literacy. Learning to create and manage a budget allows you to pay down or avoid debt, save money and plan for your future.

Understand credit

To use your credit effectively, you should first understand it. Some important concepts you should know about credit include:

• Why credit is important
• What information goes into your credit score
• How to improve your credit score

Part of understanding credit includes learning how to pay down high-interest credit card debt.

Create and manage a checking and savings account

Creating and managing a checking and savings account is another important step for financial literacy. These accounts will allow you to keep your money safe and make paying bills easier. It’s also important to learn to manage the account to avoid overdraft charges.

Understand debt and loans

Learning about debt and loans is another important part of financial literacy. Not all debt is created equal, so learning about the different kinds of debt, the strategies for each and what you should focus on paying down first should be a top priority.

Invest in retirement

It’s never too late to plan for your retirement. Use a tax-advantaged retirement savings plan like a Mutual Fund or CPF, PPF. Start investing 15% of your income each month to ensure you beat inflation while still leaving enough income to pay for other expenses, like a mortgage or student loan.

Understand the Risk of identity theft

Identify theft is when someone uses your personal information without your permission to commit fraud. It may involve using your name, credit card number, Social Security number or other information linked to your personal identity. The best way to prevent identity theft is to learn how to safeguard your information.