The Three Essential Components of Financial Literacy

By: April Carson


Financial feats that were once unheard of—from investing in cryptocurrency to instantly paying someone through an online payment system—are now commonplace across the country. But these sophisticated tasks must be built on a foundation of financial literacy, which can protect users from fraud and ensure their debt burden remains manageable as they take advantage high-tech transactions improve daily life for everyone.


Since there are so many benefits associated with being financially savvy; let's start this list off by defining what "finance" means within the context around money management. The word ' finance' comes from Latin roots meaning ‘to manage’ or deal with something."

A person who has good knowledge about how finances work should have a clear idea of where their money is going, how it has an impact on them, and ways they can save up. With this knowledge in hand, one will be able to make smart decisions when faced with financial problems or opportunities.


Having a good understanding of personal finance will help an individual know how to manage their money and plan for their future. This skill is vital because it allows a person to purchase necessary items while saving money, protect themselves from financial risk, and monitor spending habits. If a person has trouble with knowing where money is going or they would like more control over it, they can adopt three essential components of financial literacy.


To begin, we should look at what makes up this essential knowledge. There are three key components that go into financial literacy: budgeting , banking and investing. People can take these individual components and use them to create a plan tailored to their specific needs and goals for the future. The goal of any financially literate person is to get out of debt and maintain a long term savings plan.

  • Budgeting:

To keep out of debt, first one should have a budget to know how much money is coming in each month and where it is going. This allows for people to see where they can save some money or cut back on bad habits that are taking their hard earned cash.

  • Banking:

Second, you need to open up a savings account and work towards having at least six months worth of money saved in case of an emergency. Once you have set up a budget, the next step is to find a bank that works for your specific needs. There are checking accounts, savings accounts and certificates of deposits that will be suited for different people's individual needs.

  • Investing:

The final step of financial literacy is investing. This can be done by purchasing stocks, bonds or mutual funds that will allow you to make some extra money while taking on the risk of losing it all. At this point, you should have an emergency fund in place and enough money for basic day-to-day expenses; you are free to invest the remainder.


Bottom Line:


When it comes to your finances, you need to know how much money is coming in and where that money is going out.


To be financially literate, you must keep track of your budget, find a bank that will work for you. Then invest or save for retirement so that you can have a source of income when you stop working. You will then be on the road to money-making and financial freedom.




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