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What is Financial Literacy? And Why is it Critical Today? An Inside Look

Financial literacy

Financial literacy is a term that many hear but few understand, and even fewer seem to follow.

Financial literacy, which Investopedia refers to as “the ability to understand and effectively use various financial skills, including personal financial management, budgeting, and investing,” is vital, especially in today’s economic environment. In layman’s terms, financial literacy is the relationship you have with your money and is knowledge all individuals should possess. 

Although personal finance can seem daunting and confusing, there are simple steps individuals can take to understand basic financial principles. Using financial literacy as a tool is critical to stay ahead and live more freely without the woes of financial constraints. Furthermore, money can act as a powerful tool to create opportunity and strengthen prosperity, versus simply using it as a means to provide for basic needs. 

So, why is this pertinent? And how does this play into the higher education landscape?

Understanding personal finance is critical because it can help individuals avoid silly mistakes and give power back to the people when handling their financial situations. Additionally, as inflation increases steadily and many individuals struggle to stay ahead, having access to all the financial information you can is imperative. As we’ve said various times before, knowledge is power.

As it relates to higher education, financial literacy is a significant way to make the correct decisions when planning your academic future and setting your career goals, both personally and financially. Sometimes financial literacy is even more impactful after earning your degree because it allows you to apply the knowledge and skills directly to various facets of life. 

Throughout this blog feature, we’ll look at: 

  • Financial practices to follow
  • The future of finance (fintech) and some tips and tricks
  • Why understanding finance is vital at any age 

Putting Financial Practice Into Action 

First, we’ll look at various complex and straightforward practices for your consideration when it comes to personal finance.

Financial Education is Power

One of the best places to start is by understanding simple financial principles. Whether this is through watching financial gurus on YouTube, reading books like Rich Dad, Poor Dad, or The Richest Man in Babylon, listening to a podcast, or chatting with a financial advisor, financial education is an essential piece to learn before you start. Much like anything else, you’re most likely not going to jump in before reading the instructions first, right? You wouldn’t want to bake a cake without looking at a recipe first. And if you choose not to follow the recipe, you may come out with a cake, but it may not taste as good, be a little flat, or be missing pertinent ingredients that make it a delight. The same can be said for personal finance. When it comes to your hard-earned money, you most likely don’t want to mess around but instead follow a clear path that is correct from the get-go.

Understand the Basics of Money

Once you’ve brushed up on general financial education, it’s time to understand the basics of money. Some simple elements include: 

  • Pay Yourself First: This refers to saving a portion of your income every time you’re paid. The amount is entirely up to you, but it’s beneficial to get into the habit of doing it as a general practice. This way, it becomes easier over time and feels like less of a chore. Pro tip: Consider using a mobile banking application to set up “automated savings” so you don’t have to remember to do it yourself. 
  • Understand Interest: Interest is truly a double-edged sword. When it comes to earning interest on assets you may have—stocks, savings, etc.—it generates even more significant amounts. However, when you’re taking out a loan, owing a lot due to high interest isn’t great and can be detrimental. Pro tip: Whenever you’re taking out a loan, always make sure you understand the interest before signing. Most will say if it’s 5% or below, that’s a competitive rate. However, once you’re past the 5% threshold, that’s when interest can become more problematic.
  • The Investment Lens: As you start to understand financial practices better, it’s beneficial to be in the headspace of seeing things as investments. How so? Well, it’s partially about deciding what is worth spending money on versus what isn’t. What is an asset versus a liability? What is good debt versus bad debt? How do I know what the right things to invest in are? Furthermore, it’s about determining what the overall return on investment (ROI) can be for anything you’re putting money towards. Let’s explore further.

    • Assets: A resource with economic value with the expectation that it will provide a future benefit, such as a house, business, or degree.
    • Liability: A liability is something owed, typically in the form of a sum of money. This can be as simple as a loan.
    • Return on Investment: A performance measure used to evaluate the efficiency or profitability of an investment, trying to directly measure the amount of return on a particular investment relative to the initial cost. Let’s say, for example, you decided to earn your MBA. Earning an advanced degree can be seen as a return on investment because it’s an asset. Even if you have to spend an initial amount upfront, your degree can pay for itself with career opportunities, job security, and higher earnings throughout your lifetime.
    • Good Debt: Debt that is used to generate higher returns, such as taking out a small business loan to get your business started, with the expectation that profits will pay back your loan and provide you with a substantial income.
    • Bad Debt: High-interest loans, large credit card debt at high-interest rates, or borrowing money for things with little to no monetary value, such as clothes, lavish trips, or an expensive car. Please note, debt isn’t something that should always be seen as evil. Again, it’s all about what it’s for and how the debt is distributed. A loan for something that can generate a return, such as a degree, is much more advantageous than buying an expensive car that you can’t afford, only to watch it depreciate quickly over the lifetime of ownership.
    • Spend Less Than You Make: This practice is easier said than done. While it might seem easy, it can be shocking to see how much money you spend—even if it’s literally on basic living expenses. A little here and there can eventually add up to a lot, so keep this in mind every time you’re making a purchase. One of the best ways to adhere to not overspending is living below your means. In other words, find ways to cut out unnecessary expenses and never bite off more than you can chew. This doesn’t mean you have to be miserable and not enjoy living your life. It simply means not spending money just to spend money. Instead, find ways to pay for the things you truly value and find ways to save and invest the rest! 

Have a Plan: Look at the Big Picture

Once you understand some of the financial jargon, it’s integral to establish a plan. Having a financial plan makes life easier and prepares you better for the future and the unexpected. A financial plan can include things like:

  • Setting a budget
  • Saving a fixed amount of money each month
  • Planning for future life events like buying a house or planning for retirement
  • Utilizing benefits offered by your employer (401k) or a trusted financial institution

Invest in Yourself

Investing in yourself is a modern practice that has gained popularity over the years. Some financial experts attest that investing in yourself helps you earn more income over time while also contributing to your personal development. Why? Because investing in your wellbeing does wonders for your life, both personally and professionally, which in turn can help you perform better and advance in your career. Investing in yourself can look like:

Patience is Key 

When it comes to most anything related to personal finance, patience is critical. Famed investor Warren Buffet states, “No matter how great the talent or efforts, some things just take time.” Even though practices like saving, investing, and being frugal can be challenging for a while, over time, it pays off (usually paying off well.) The best way to think about personal finance is like a marathon, not a sprint. It doesn’t matter if you go slow or fast; it’s about you running the race and keeping pace. 

The Financial Future: Tips and Tricks 

Once you’ve grasped the basic principles of personal finance, it is good to get in the habit of exploring ways to maximize your hard-earned cash. As finance and technology continue to increase, the world of “fintech” is becoming more and more prominently used by the average consumer. Let’s explore some exciting ways this integration is helping people become financially savvy.

Please note, none of these products/services are paid promotions. They are based on personal experience and in-depth research. We are covering this to show recent developments in the financial space. It is dependent on you and your research to find what financial products best suit your needs. 


One of the more popular fintech services, SoFi, is a mobile-first bank that offers users the ability to house all of their financial needs with one banking service, including student loans, mortgages, credit cards, investing, and more. As a bonus, SoFi offers consumers the opportunity to learn about finance through webinars, information sessions, member experiences, and more!


Saving can be challenging and boring. Yotta flips this concept on its head by creating a “lottery” style type of savings—giving users tickets for each dollar amount saved. The more you save, the more tickets you earn. These tickets go into Yotta’s automatic lottery, enabling users to win more money via cash prizes and general interest. Since Yotta is a mobile-first banking app, there is very little overhead compared to traditional banking. That being said, Yotta can provide higher returns for its customer base. And for all of those thinking it, yes, Yotta is safe. Their services are FDIC insured up to $250k and held by Evolve Bank & Trust, with military-grade encryption designed to protect your earnings. 


Investing is typically one of the most challenging habits individuals struggle to follow. Why would I put money away for the future when I don’t know the future? It makes sense. But, again, it’s about having a plan. It is not ideal to retire in old age with $50 to your name. Did you know some of the most significant expenses can come during retirement? With that in mind, apps like Wealthfront can help you grow your net worth with intelligent technology (artificial intelligence), or you can focus on investing yourself. Either way, it’s great to have technology on your side making strides to protect your financial future. 

Consider Automated Tools

Whether it’s automated saving or investing, it’s great to have an automatic feature to put money aside every month. The beauty of automation is that you don’t have to worry about it; it’s done automatically!


A personal finance blog or news outlet helps you stay on top of current and emerging trends in the financial world. NerdWallet is a fantastic outlet for anything and everything related to money. They have a dedicated team of prolific financial gurus and journalists who analyze, compare, and test various financial-related items, including loans, credit cards, insurance, and more!

Consider a Financial Advisor

A key takeaway from The Richest Man in Babylon centers around seeking financial expertise from those who know it best. This still stands true today, with many high net worth individuals having a financial advisor. Why? Because a financial advisor dedicates their career to understanding finances. Much like anything else, it’s good to put your trust in the experts. You aren’t going to get your hair cut by a baker, see a hairstylist for a medical problem, and see a doctor for an assortment of pastries. So, if you’re going to trust someone to help you manage your money, it’s best to stick with the professionals. Now, do you need a financial advisor to be financially successful? No. Choosing an advisor is entirely up to you. However, if you do seek help, a financial advisor is a great place to start.

Social Media 

Contrary to popular belief, social media is one of the best tools for learning about finances. While it may seem like there is a stigma attached to social media and “fake news,” you’ll find various profiles and personalities that provide credible and valuable financial information if you do your research. Social platforms such as YouTube, Instagram, and the widely popular Tik Tok all possess various hubs of knowledge that allow users to learn complex and straightforward financial expertise that aren’t typically available in a traditional classroom setting. Furthermore, social media is a strategic way to connect with various financially literate individuals and network with seasoned professionals who know the ins and outs of personal finance. So, with that in mind, remain open to the idea that social media can provide financial insights you may not get anywhere else—especially if it’s free. 

So, Why Does All of This Matter?

Hopefully, this feature intends to get you thinking about finances—if you don’t already—and provide insight on why financial literacy is not only helpful but critical to stay ahead in today’s tumultuous economic environment. With the wealth gap dividing further between current and older generations, it’s challenging to stay ahead when costs continue to rise, wages seem to stagnate, and the competition for careers continues to occur. Financial literacy and putting it into practice can help individuals live for today while also planning for tomorrow. Gone are the days of “I’ll figure it out later” and “that’s not my job.” Instead, it’s better to embrace learning new things—even if it can seem overwhelming. We will leave you with this. Businesswoman and financial expert Alexa von Tobel states, “A good financial plan is a road map that shows us exactly how the choices we make today will affect our future.” Much like earning your higher education, pursuing your career aspirations, and working towards your legacy, financial literacy is a road map to help you accomplish all of those things.