Introduction to financial wellness and literacy

Financial literacy and financial wellness are two distinct terms that many people usually confuse with each other. Although both of these terms describe a financial state that everybody desires, a closer look at these individual concepts reveals their differences and implications. 

Before we jump into defining each of them and supplying you with all the information you need to get started on both paths, we need to establish a fact. 

To live a life of financial freedom, you must clearly understand what both concepts imply, where they apply in your life, and what you must do to attain them.

Trying to choose one over the other (financial literacy or financial wellness) will lead you down a dark and dingy rabbit hole.  

What is financial literacy? 

The Bank of America made a report that was documented by the National Financial Educators Council. This report showed that only 16% of Americans between the ages of 18-26 are optimistic about their financial fate. This study also reported that 54% of millennials lack financial literacy and are unable to pay back their student loans.

These figures (and a lot more) show that financial literacy is largely deficient in the American system, despite how vital this concept is in the overall economic status of a country. 

Financial literacy is to be aware of one’s finances ( not just the amount of money a person has in savings). Wikipedia defines financial literacy as the possession of the required skill set and knowledge that enables a person to make informed decisions about money and other financial resources. 

Financial literacy speaks of the ability of an individual to understand how money works and make the best decisions on how to grow their money, make profitable investments, live debt-free, and have a reasonable sum put aside for future use. 

Why is financial literacy important? 

Here are a few reasons why you must be financially literate. 

  1. When you’re financially literate, you have what it takes to make the best financial decisions for the different stages of your life. The major advantage of this is that it enables you to keep your head above water as you’ll understand when and how to save and invest money and also how to avoid costly financial errors. 
  2. Financial literacy plays a major role in helping you attain financial wellness. Although we’ll discuss more financial wellness later, know for now that financial wellness is a major part of the freedom and independence to live life on your terms that you seek. 

If you’re financially illiterate, you won’t be able to achieve financial wellness. It means that you may have to put up with an unfavorable lifestyle for a long time, including working a terrible job, remaining neck-deep in debt, and never being able to retire young and unafraid. 

When can you say you’re financially literate? 

These are the conditions that define your financial literacy. 

  • You understand the significance of budgeting and practice it effectively. 
  • You’re able to pay off your loans at the right time, and you do not get induced into purchasing things you don’t need. 
  • You have a working knowledge of how investing, credit scores, and credit cards work. 
  • You have a grip on your financial goals, and you carefully analyze the effects of all your moves and decisions on your finances both in the short and long term. Under this condition, you don’t jump into doing things, and you’re never pressured to make any financial decision you haven’t yet thought through. 

How to get financial literacy

Is financial literacy something you can achieve just like that without having to become a financial expert? 

The simple answer is yes. 

Honestly, you don’t need to go to a special school or get a degree in accounting (except you want to) to be financially literate. 

You can start doing these things today to get yourself on the fast track of financial literacy. 

1. Read…

Books on financing, money management, and other related topics like investing, entrepreneurship, and effective savings methodologies are a great place to start. One of the easiest ways to learn anything is by reading a good book about the subject of interest. 

2. Get a financial advisor

Here, we aren’t talking about your friends and family (except they are trained, financial experts). A financial expert will guide you into making correct decisions for your money, and these may include where to invest, how to save, how to obtain loans when you need them, and the best ways to engage in loan repayment. 

3. Set Financial goals.

It would help you stay on course and do the work you need to do if you want to get wealthy. Setting financial goals would also help you maximize budgeting, and this way, you don’t have to keep flushing your hard-earned money down any available drain. 

What is financial wellness? 

Financial wellness is the state of being financially stable, comfortable, and independent. It is the overall financial state of a person, which is the result of many individual and interdependent factors, including past financial decisions. 

Financial wellness is a major concept that everyone must know about because a nation that has a reasonable population of financially well people has a thriving economy. When financial wellness is negative, the result will be the opposite. 

Why is financial wellness important?

Financial wellness is important because 

  1. It plays a major role in your journey to financial independence and freedom. To build the life and business of your dreams, you must pay attention to get your money right. 

You won’t be able to achieve this if you haven’t paid attention to achieving financial wellness. 

  1. When you are financially well, you eliminate stress and unnecessary worries from your life. A publication in the American Journal of Epidemiology discussed that there is a direct relationship between suicide attempts (including successful suicide missions) and extreme financial strains. The publication discussed that financial strain is a significant risk factor for suicidal ideation and suicide attempts. 

Although impending financial crises aren’t the only reasons why people attempt suicide, they play a major role. 

Can you, for one second, imagine how easier your life would have been if you didn’t have to worry about money again? 

  1. Financial wellness gives you a sense of control over your life and your personal affairs. When you have your money figured out, you can decide what you want to do with yourself, pursue your dreams and do things you’re passionate about, and grow your business as much as you like. 

When can you say you have achieved financial wellness? 

  1. When you have a healthy savings account and have invested in profitable ventures. 
  2. When you have created and adequately put money into an emergency fund account. The money in that account should be able to cover up at least six months of your living expenses.
  3. When you have achieved your financial goals, you can easily absorb a financial shock without going bankrupt or broke. 
  4. When you can take a break from active work for an appreciable amount of time without bearing the consequences in the form of depleting funds. 

How to achieve financial wellness

Follow these steps to achieve financial wellness. 

1. Analyze

Analyzing also applies to your journey to achieving financial wellness. It allows you to draw from the experiences of other people who achieved what you want to and to find practical lessons and action points you can apply to yourself immediately. 

2. Work on increasing your income

It will help ensure that you cultivate a healthier savings habit, thereby creating more robust savings and investment accounts quickly. It’s easier to save when you have enough funds to cover your daily living expenses. 

3. Focus on building healthier financial habits.

Some of the things you must learn are spending less than you earn, investing what you save, creating an emergency funds account, and eliminating impulse buying. 

Also, getting a financial expert to serve as an advisor would be a great idea. 

Summary 

Financial Wellness and Financial Literacy are different concepts, although they look alike and easily get interchanged by people. To enjoy financial freedom, live life on your terms, and consistently hit your financial goals, you must have a firm grip on both concepts and apply them in your context. 

To get detailed answers to all of your financial problems and the questions you’ve been asking, visit Credit Ninja’s Loan Repayment FAQs.

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