What is the definition of financial literacy?

Financial literacy encompasses the understanding and ability to make informed financial decisions. This includes recognizing how to manage money, budget, invest, understand credit, and assess risks. A financially literate individual can interpret financial information, evaluate various financial options, and strategize effectively to achieve their financial goals. This definition is integral because it highlights not only knowledge but also practical application in making choices that impact personal finances.

While saving money effectively, understanding markets, and negotiating agreements are important financial skills, they are subsets of the broader concept of financial literacy. Each of those skills contributes to the larger goal of making informed decisions, but they do not fully capture the essence of what it means to be financially literate. Therefore, the comprehensive view that financial literacy provides empowers individuals to navigate their financial environments and enhance their economic well-being.