Financial literacy: speaking the language of money

Getting a firm grip on your finances can feel like a huge win—and it absolutely is! Financial literacy isn’t just for Shark Tank stars and Wall Street gurus. Anyone can learn the skills they need to take control of their money. Let's dive in and discover how to make your money work for you.

Understanding financial literacy

Financial literacy is an understanding of how finances work. You already have some financial literacy. If you know how to open a savings account, apply for a loan, check your credit score, pay your bills, or put money away for a special occasion, you’re on your way. 

Financial literacy is an ongoing process, just like language literacy. Over time, you can pick up new knowledge and learn more complex financial concepts. It’s doable and within your reach. Anyone can join the club. Start with a few basics and watch your money know-how improve. 

Why financial literacy matters

Financial literacy means understanding how the money world works, and using what you know to your advantage. Think about how good it will feel to reach your big money goals, feel confident about your spending, and have peace of mind when it comes to saving for the future. 

That's the power of financial literacy—to help you reach the kind of financial freedom that allows you to live your best life.

What financial literacy can do for you

Those who become financially literate are better prepared to:

• Improve their credit scores

• Manage debt responsibly

• Pay lower interest rates

• Reduce credit card balances

• Save for emergencies

• Plan for retirement 

• Manage their student loans (with affordable payment plans)

When you’re financially literate, you have more confidence in your decisions. Imagine that you:

• Have a healthy emergency fund to take care of unexpected car repairs, medical visits, or school expenses

• Know how much you can safely spend each week and month

• Are growing your nest egg for a comfortable retirement

• Have built excellent credit and know you’ll be approved for the best loans

• Get valuable rewards for smart credit card use

• Understand how to save on taxes

• Protect what you have with insurance

• Make informed decisions about loans and credit

• Are comfortable with investing 

Understanding your personal finances is empowering, feels great, and delivers tangible benefits.

Everyday opportunities to increase your financial literacy

You can easily improve your financial literacy every day, starting now. 

Tasks you can complete right now

Here are a few steps that you can complete in just a few minutes:

• Check your credit report and credit scores. 

• Keep running tabs on how much is in all of your accounts, including checking, savings,  and retirement accounts. 

• Grab your paycheck and other income statements. What’s your before-tax monthly income?

• Make a list of all of your debts. Write down how much you owe, your monthly payment amounts, and the interest rate for each debt.

This is information you need to create a budget, get rid of debt, or apply for a loan. You’ll use it for more advanced exercises. 

7 ways to increase your financial literacy

People who are financially literate take certain basic actions to improve their chances of success. And so can you. 

1. Understand your credit report

Your credit report is a goldmine of information compiled by three credit reporting agencies: Experian, Equifax and TransUnion. Lenders, insurers and even some employers may check this report before lending to you, insuring you, or hiring you. Once you understand what’s on your credit report, you can track, improve and protect your credit standing. You might only need a few small tweaks to make big gains.

2. Protect yourself from scams

If you get a call, text or email from anyone wanting you to “confirm” or “verify” your account or login information, it’s likely a scam. If your bank wants information, call them yourself and verify that they need it. Deal only with reputable companies with third-party reviews you can check and licenses you can verify. Enable two-step validation on your accounts and use different passwords for higher-level things. Use an online password manager (there are many free ones). It’s not worth the risk of having a guessable password.

3. Create and stick to a budget

Everyone in your household should know how much they can spend each week and month. Have a budget, even though it’s likely to change now and then. You’ll want to circle back and track whether you were able to stick to your budget, and decide what needs to change if you miss your target. Do this weekly until you get good at it. 

Budgeting methods exist for every style. Here are a few to consider:

• Envelope budget

• 50/30/20 budget 

• The Achieve MoLO app

• Hire an accountant

4. Get control of high-interest debt

Determine how much you can put toward debt reduction each month, where that money will come from, and which debt you’ll tackle first. 

The best way to get rid of your debt may depend on your current credit standing, your current income, and how overwhelmed you feel. Options include:

• Avalanche method 

• Snowball method

• Debt consolidation

• Debt resolution—resolve your debts for less than the full amount you owe

• Get on a debt management plan

The Achieve Get Out Of Debt (GOOD) app is free and can help turbocharge your debt plan. 

5. Establish a regular savings habit

When you’re starting a new behavior, it’s more important that you commit immediately than that you do it perfectly. So even if you can only put $5 a week into savings, do it now. Everybody needs an emergency fund. Everybody has unexpected expenses from time to time. Make it your mission to deposit something every week, and to leave that money to grow and work for you. 

The easiest way to save is probably a regular payroll deduction into your savings account, or an automatic transfer from your checking to savings. 

Once you’re saving regularly, you’ll be in a better position to experience the magic of compounding. Compounding means earning interest on interest. You won’t notice much growth, though, if you’re putting your money in a bank savings account that only earns a fraction of one percent. For better results, use a high-yield savings account. They’re easy to find online, and you can make your deposits electronically.

Regular deposits and compounding are how regular people with ordinary incomes can end up with hundreds of thousands in retirement. Slow and steady wins. 

6. Set S.M.A.R.T. goals for your money

What’s a S.M.A.R.T. goal? It’s Specific, Measurable, Achievable, Relevant, and Time-bound. For example:

You know that you’d like to have less debt and more savings. But that’s just a hope—not a goal. To turn your hope into a S.M.A.R.T goal, you might come up with something like this:

• Specific: I have $5,000 in credit card debt at a 24.99% APR. I want to pay it off without decreasing my savings or increasing other debt. 

• Measurable: I’ll know I've reached my goal when my credit card balances are zero. 

• Achievable: I can achieve this goal by using the avalanche method. I’ll put $480 per month toward paying down the card with the highest interest rate while making the minimum payments on all other cards.

• Relevant: This goal is important for my financial health. By getting rid of high-interest debt, I’ll be able to save more money.

• Time-bound: I want to reach this goal in one year. 

This is a great goal because once you become free of credit card debt, you can put those payments into saving for your future–retirement, vacations, education, home improvements, whatever’s most important to you. 

7. Talk about finances at home

Budgeting requires buy-in. Make financial chats part of your weekends with your partner. Set your kids up with savings accounts and talk to them about budgeting and spending when you’re out shopping together. 

What’s next?

• If necessary, talk to the right professional for your situation and goals. That might be a debt expert, credit counselor, accountant, financial planner, lender, debt advisor, bankruptcy lawyer or retirement planner. 

• Download the GOOD and MoLO apps and connect your accounts. You’ll be able to see your debts and accounts in one place, create a debt payoff plan, and make better day-to-day money decisions so you have more money left over each month.

• Spend about 15 minutes a day on any of he “get started” tasks listed above. Don’t try to do them all on the same day—it’s building good daily financial habits that counts.