How important is financial literacy?

Category: Financial Planning

A global financial literacy survey indicates that around a third of the UK needs help understanding the most basic financial concepts.

There are many potential benefits of financial literacy. People with strong financial skills do a better job planning and saving for retirement. [1][2] Financially savvy investors are more likely to spread their risk and not expose themselves to the possibility of financial ruin. [3]

Financial ignorance, on the other hand, carries high costs. Consumers who need help understanding the concept of interest compounding spend more on transaction fees, run up bigger debts, and incur higher interest rates on loans. [4] [5] They also borrow more and save less money. [6]

How can I improve my financial literacy?

There are many ways to improve your financial literacy. Here are a few suggestions:

  • Read books or articles on personal finance: Many books and articles can help you learn more about managing your money.
  • Take a course: Consider taking a personal finance course at a local college or online. This can be a fantastic way to learn about financial topics in a structured setting.
  • Work with a financial advisor: A financial advisor can help you understand your financial situation and make recommendations for improving it. They can also help you create a financial plan and set goals.
  • Use financial planning tools: There are many online tools and apps that can help you track your spending, create a budget, and plan for the future.
  • Ask questions: Don’t be afraid to ask questions if you don’t understand something. There are many resources available, such as financial advisors and online forums, where you can get answers to your questions.

Book a free, no-obligation chat here if you need help understanding some of the concepts that form part of your financial planning.



[1] Behrman, Jere R., Olivia S. Mitchell, Cindy K. Soo, and David Bravo, (2012). “The Effects of Financial Education and Financial Literacy: How Financial Literacy Affects Household Wealth Accumulation,” American Economic Review: Papers &Proceedings, Vol. 102(3), pp. 300-304.

[2] Lusardi, Annamaria, and Olivia S. Mitchell, (2014). “The Economic Importance of Financial Literacy: Theory and Evidence,” Journal of Economic Literature, American Economic Association, Vol. 52(1), pages 5-44, March

[3] Abreu, Margarida, and Victor Mendes, (2010). “Financial Literacy and Portfolio Diversification,” Quantitative Finance, Vol. 10(5), pp. 515-528.

[4] Lusardi, Annamaria, and Peter Tufano, (2015). “Debt Literacy, Financial Experiences, and Over Indebtedness,” Journal of Pension Economics and Finance, Vol. 14, special issue 4, pp. 332-328, October.

[5] Lusardi, Annamaria, and Carlo de Bassa Scheresberg, (2013). “Financial Literacy and High-Cost Borrowing in the United States,” NBER Working Paper 18969.

[6] Stango, Victor, and Jonathan Zinman, (2009). “Exponential Growth Bias and Household Finance,” The Journal of Finance, Vol. 64(6), pp. 2807-2849, December.


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