Financial Literacy: What It Is, and Why It Is So Important to Teach Teens

Definition:
Financial literacy is the set of skills needed to handle money wisely, invest effectively, and plan for a comfortable future.

Overview

Financial literacy is the essential foundation for a smart relationship with money. It is the start of a lifelong journey of managing the financial aspects of your life. Knowing the basics of money management, budgeting, saving, and investing contributes to a more successful and less stressful life.

The earlier you start to become financially literate, the better off you'll be.

Understanding Financial Literacy

Earlier generations relied on cash, and only the relatively affluent had access to loans. Today's consumers face a world that is both more convenient and more hazardous.

Credit cards, debit cards, and electronic transfers are now preferred over cash. Internet shopping made electronic payments routine. The COVID-19 pandemic virtually ended our reliance on cash, as consumers minimized human contact. Even in brick-and-mortar stores, in 2025, cash is used in only about 11% of transactions. Meanwhile, the average interest rate on credit cards is just under23%.

Financial literacy means understanding the costs of using credit.

Pitfalls of Illiteracy

eing financially illiterate can lead to financial disaster, as it increases the likelihood of accumulating unsustainable debt burdens due to poor spending decisions or a lack of long-term planning. This, in turn, can lead to poor credit, bankruptcy, and housing foreclosure.

There are now more resources than ever for those wishing to educate themselves. One such resource is plussavefinancialsolutions.com

Why Financial Literacy Matters

1. It Supports Financial Well-Being

   Day-to-day living expenses, living within your means, short-term borrowing, and long-term budgeting are essential components of being financially sound. You need to be financially literate to manage these and other essential financial realities as you go through life.
   
   It is important to plan and save enough to provide an adequate income in retirement while avoiding high levels of debt that might result in bankruptcy, default, or foreclosure.
   
   In its "Economic Well-Being of U.S. Households in 2022" report, the U.S. Federal Reserve System Board of Governors found that many Americans are not prepared for retirement. Twenty-eight percent indicated that they have no retirement savings, while about 31% of those not yet retired felt that their retirement savings were on track. Among those who have self-directed retirement savings, about 63% admitted to feeling low levels of confidence in making retirement decisions.
   
   
   

2. Millennials' Challenge

   Lack of financial literacy has left millennials—the largest share of the American workforce—unprepared for a severe financial crisis, according to research by the TIAA Institute. Even among those who reported having a high knowledge of personal finance, only 19% answered questions about fundamental financial concepts correctly.
   
   Forty-three percent reported using expensive alternative financial services such as payday loans and pawnshops. More than half lacked an emergency fund to cover three months' expenses, and 37% were financially fragile (defined as unable or unlikely to be able to come up with $2,000 within a month of an emergency).
   
   Millennials also carry large amounts of student loan and mortgage debt. In fact, 44% of them said they have too much debt.
   
   Although these may seem like individual problems, they can have a broad impact. A lack of personal financial awareness created widespread vulnerability to predatory lending in the period leading up to the 2008 financial crisis. Too many people were granted mortgages they couldn't afford and, inevitably, they defaulted. The impact was felt worldwide.