What is financial literacy?

Financial literacy  is a combination of knowledge, skills and attitudes in the field of human financial behavior, leading to improved well-being and a higher quality of life; the degree to which key financial concepts are understood, ability and confidence in managing personal finances through short-term decisions and long-term financial planning, taking into account life events and changes in economic conditions.

Simply put, financial literacy is the ability to manage personal money and take responsibility for its decisions.

Financial literacy affects a person’s overall well-being. That is, the better a person understands basic and advanced economic concepts, the more he understands how to improve his life.

Financial literacy of the population affects the overall economy of the country. 

Basics of Financial Literacy

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Robert Kiyosaki, author of the best-selling book “Rich Dad, Poor Dad”, wrote that the financial and economic literacy of an individual consists of:

  • Knowledge of the Tax Code.
  • Theoretical and practical knowledge of accounting.
  • Drawing up a basic plan of income and expenses.
  • Knowledge of the concept of “money” and their use.

These fundamentals are the foundation of financial literacy. After them, it is already possible to move on to expanding our knowledge in the areas of investment, business, marketing, etc.

Financial literacy levels

Some publications divide financial literacy into levels: 0, 1, 2, and 3. There is no clear classification of these levels. You can only select a few features characteristic of each:

  • Level 0 – no or minimal notions of financial literacy.
  • Level 1 – the basic concept of financial literacy.
  • Level 2 – the use of basic investment tools.
  • Level 3 – full use of all financial instruments.

The difference between 1 and 2 level of financial literacy is much higher than between 1 and 0. After all, to build up a base for general information on accounting, taxation and economic knowledge in general is quite simple. But getting specific investment information is much more difficult.

Do not think that an ordinary citizen will be enough first level of financial literacy. But despite the fact that Level 2 and Level 3 are studied exclusively investments, without them you will not be able to increase the amount of your money, and as a result, the general welfare.

A person’s literacy at the third level can be expressed as follows: most of his savings are in stocks and bonds not only of top companies, but also medium-sized enterprises, which show active growth.

Personal financial literacy

Personal financial literacy – a set of knowledge of the individual about all economic phenomena. General financial literacy is the national average. Increasing personal financial literacy, you contribute to improving the economic situation in the country, albeit indirectly.

What does financial literacy affect?

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As we said above, financial literacy is a fairly important indicator for an individual. Let’s see what it affects.

The higher the financial literacy rate, the more information about money and the economy you know. You can know how banks, financial structures work, why the state cannot live without taxes. Financial literacy allows not only to learn a lot of interesting things, but also to get rid of stereotypes. Let’s look at a specific example.

In our country, the Central Bank at the legislative level is a separate structure. That is, the state of the Russian Federation is not responsible for the debts of the Bank of Russia, and the Central Bank is not responsible for the debts of the Russian Federation. The banknotes we hold are the obligations of the Bank of Russia. The state is not legally related to it.

That is, all that, as you think, is valuable, is really only a “commitment”, and there is no security for money. Yes, this is a simple truth, but many people do not even think about it.

And this is just the tip of the iceberg. For the state, the financial literacy of the population is the most important part of the economy involved in the process of redistributing money. You have free finance, and a businessman needs money. You buy a share from him, and he pays you dividends. This is how the system works in developed countries.

5 pluses to be financially literate

Some people still think that if they are not accountants and economists, then they don’t even need to know the basics of economics. The goals of each person are different, but financial literacy is the way to achieve many of them.

We give you five advantages of financial literacy.

1. Formation of the foundations of financial thinking.

Financial thinking is the most important feature for an entrepreneur. But most people think that an ordinary person does not need it. Let’s take an example to figure out what is wrong.

In 2014, one competent car owner sold the car, which at that time was worth 500 thousand, for 450 thousand. It was the beginning of the summer, the financial crisis had not yet erupted, but the clouds were gathering. He was dissuaded, asked to wait a few months: there is a man who will take both 500 and 520 thousand. But he sold, then after a few months the ruble exchange rate is rapidly falling, and the prices of real estate and cars are flying down.

Here is an example of financial thinking. A person, having lost at one moment the potential 50 thousand, saved much more. And by increasing financial literacy, you can see more options for earning or saving money.

2. Increase welfare.

The higher your financial literacy rate, the more you earn. Yes, the salary and literacy of a person are often little related. But incomes are generated not only from the salary. There are investments that determine human well-being in the West. In America, 2 out of 3 families keep their savings in securities. They receive interest from them, and they generally do not need additional sources of income for retirement.

The better you know the financial system, the more you earn.

3. Unloading.

Familiar with this common stereotype: “rich people work a lot”? He came to us from the West, where the cult of “workaholism” is present. If you do not disappear at work 60 hours a week, it means that you do not work and you have no money. But reality tells us something completely different.

The rich can be divided into two broad categories: those who really work a lot and those who work effectively. Sometimes they are the same people, but most of them are different. Those who work a lot really get more. Only they also spend a lot. And they have absolutely no free time left.

Those who work efficiently, on the contrary, know how the whole system works, and understand how you can earn more by making less effort. Of course, the result is one – more money. Only if you increase literacy, as we have already found out, along with it grows financial thinking, which increases your earnings.

4. Reducing costs.

A financially literate person is able to control his expenses. Here we touch on a little psychology. Do you know how most of the goods are sold in shopping centers, not the main ones, for which you go, but additional ones, which you didn’t plan to buy? Colorful counters, coffee machines, mini-cafes, bars stand in those places, among which you pass. You can pass by and not spend money, but more often you will choose something and spend more.

Also in life. You can avoid the extra costs that are imposed on you if you are financially literate. Do you want to take a loan? But it is better to wait 2 months and buy the item yourself. Want to fly on vacation, but at the last moment something unexpected happened? You have an airbag.

The higher your financial literacy level, the more unnecessary expenses you can avoid.

5. Reducing risks.

Our financial illiteracy strives to take advantage of almost everyone. We can easily see it just by coming to the bank. The manager will tell you that this is a cheap loan and that you can quickly repay it. You yourself know what lies behind such speeches: additional interest, insurance, services that you do not need.

Increasing your financial literacy, you will less fall into such situations. A trivial example: on a website at a bank the cost of a consumer loan will be indicated at around 20–25% per annum. It seems a lot, but relatively tolerant. At the same time, the real cost of a consumer loan will be 40–45% due to additional insurance, imposed maintenance and additional functions like SMS informing and application fees.

It takes a little time to understand the basics of financial literacy. A few weeks, 1 to 2 hours a day, to read the relevant literature and understand exactly how the financial system works as a whole – this will be enough.

How to improve financial literacy

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The Bank of Russia has long been trying to introduce a program to improve financial literacy. In some schools, employees of the Central Bank and specially trained people conduct courses of lectures, competitions and thematic events dedicated to financial literacy.

But if you are not a schoolboy, you will have to study on your own. Mastering a simple base is pretty easy. Some profile literature, several popular books, and now you already imagine how everything works and how to work with it.

To deepen their knowledge, will have to try. The most important direction, without which you can not safely enjoy life – investing . Yes, investment in the West is now very developed. And this is no accident.

Even Theodore Dreiser (in his “Trilogy of Desire”) wrote: “Money must make money . 

And now let’s move on to more specific books and textbooks, with which you can improve your financial literacy.

Books and textbooks on financial literacy

Let us figure out where to start the study of financial literacy. First, let’s talk about online resources. Websites devoted to investing, bank reviews and the work of the country’s credit system as a whole will help you understand how the country’s financial system works and how the task of redistributing resources is one of the most important for the economy.

Our site How to earn money. Ru as no one else is suitable for increasing the level of financial literacy.

Also, investment websites like RBC are a great way to broaden the understanding of the stock market. There are some good tests on the website of the Central Bank. In them you will learn about signs of counterfeit money, which will also be useful.

Now about textbooks and specialized books:

  1. “The ABC of Financial Literacy” Avedin. V. is a basic textbook worth reading for everyone. Describes financial literacy, why it is needed and why every self-respecting person should study it.
  2. The financial analysis. Efimova O. Applied textbook on financial analysis.

These two books will be enough to understand the essence of the issue. And at the end of the best-selling literature. Here you can select several really significant books:

  1. “Rich Dad Poor Dad” by Robert Kiyosaki. The book is about how to use money. Autobiography.
  2. The Trilogy of Desire. The story of an American entrepreneur who had everything in life. Booms, own business, downs and jail.
  3. “Atlas Shrugged” Ayn Rand. This is the real bible of capitalism. It will be useful for those who want to understand entrepreneurship, and find out why it is so important for the whole country.

On the various courses to improve financial literacy unambiguous nothing can be said. On the one hand, they do provide information. On the other hand, there is enough of it in open access. It is better not to pay the N-th sum for any literacy course, but read the books presented above.

Immediately it should be said that blogs and Vkontakte groups like “Mind of a Millionaire” and so on will not bring any practical benefit. They only have quotes and “water”.

After reading all the literature and subscribing to the mailing sites, you can not only improve your level of financial literacy in general, but also understand whether you are interested in delving into this topic. If you decide, then choose the literature for your specific profile: taxes, accounting, general economy, investing, stock market game, etc.


Financial literacy in the modern world is very much appreciated. First of all, it is a tool to improve their own well-being and standard of living. The more you know, the more methods you can use. If you want to improve your life, earn more, putting less physical effort into it, then you should start from the base – with increased financial literacy.

Author: Jackson

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