William Huston, AIF®, AIFA®

Why is Financial Literacy Important

William Huston, AIF®, AIFA®

William Huston, AIF®, AIFA®

Why is Financial Literacy Important?

financial literacy forum

Do you know what to do to fix poor credit scores? Are you familiar with the basics of investing and saving for retirement? These are just a couple of the critical questions that millennials should be asking themselves when it comes to personal finance.

Unfortunately, many members of this generation are struggling with large amounts of student loan debt as well as credit card debt, and an overall low level of financial literacy education. In fact, the average millennial scored only 42 percent on a recent Personal Finance Index, compared to 50 percent for the general population.

To compound the issue, studies reveal a sickly situation regarding their financial health as a result of poor financial habits: millennials are more likely than any other age group to have more debt on their credit cards than emergency savings, with 45 percent reporting this financial situation.

It's clear that financial literacy matters more than ever. And I'm excited to share in this blog post some valuable lessons I've learned that have enabled me to build financial stability.

As a fellow millennial, I understand the struggles we face, and I'm eager to provide some insight into how to improve your financial literacy and take control of your finances.

Reach out here for personalized financial guidance.

Key Takeaways
  • Financial literacy is the knowledge, skills, and ability to make informed and effective decisions about financial matters. It involves understanding basic financial concepts such as budgeting, saving, investing, borrowing, and managing debt.
  • Financial literacy is important for personal financial management and for making informed decisions about investments, loans, and other financial transactions.
  • Financial literacy is essential for young adults, including millennials, as they navigate an increasingly complex financial landscape.
  • Strategies to improve financial literacy skills include reading financial literacy books or taking online courses, attending financial literacy seminars or workshops, creating a budget and tracking expenses, seeking personalized financial guidance, and more.

The contents of this article are for educational purposes only. They are not intended to be a source of professional financial advice. You will find experts on financial planning, financial management, and real estate here. More on disclaimers here.

What does financial literacy mean and why is it important?

a presentation on financial literacy

In today's age of ubiquitous information, it appears that everyone has an opinion on everything. However, when it comes to important life decisions, especially in finance, having the guidance of a knowledgeable expert is crucial.

Jump the hoops and hop for personalized education and guidance with one of our experts.

What does financial literacy mean?

Financial literacy refers to the knowledge, skills, and ability to make informed and effective decisions about financial matters. It involves understanding basic financial concepts such as budgeting, saving, investing, borrowing, and managing debt.

A financially literate person has the ability to understand financial products and services, analyze financial risks and opportunities, and make informed financial decisions that are in line with their financial goals.

What are the 3 main components of financial literacy?

Although earning, spending, and saving are fundamental aspects of financial literacy that may seem intuitive to most people, budgeting, investing, managing debt, and protecting oneself financially are also essential components that reinforce the three main aspects.

Financial literacy is important for personal financial management and for making informed decisions about investments, loans, and other financial transactions. It is a critical life skill that can lead to financial security and long-term financial well-being.

Why financial literacy is important

Having a solid understanding of financial concepts and products can help individuals prepare for and navigate financial emergencies. Given that economic disparities disproportionately affect students of color, improving financial literacy can be a crucial step in promoting wealth accumulation and reducing wealth disparities in marginalized communities.

Financial literacy is crucial for anyone seeking to improve their financial wellbeing. It can help you prepare for economic challenges, emergencies, and unexpected events.

For instance, having financial knowledge can help you respond effectively to financial emergencies and minimize their impact on your financial stability.

Moreover, studies show that economic disparities disproportionately affect students of color, making financial literacy an essential tool for building financial resilience and bridging the wealth gap.

Improved financial literacy can also help you accumulate wealth, manage debt, and make informed financial decisions. By equipping yourself with financial knowledge and skills, you can better prepare for the future and achieve your financial goals.

What are the benefits of financial literacy?

extra money for a financial literate spender

Better Financial Decision-making

Financial literacy enables individuals to make informed and effective decisions about their money. With a good understanding of financial concepts and products, people are better equipped to manage their finances, avoid financial pitfalls, and achieve their financial goals.

Improved Financial Well-being

Financial literacy can lead to greater financial security and stability. By making informed decisions about spending, saving, and investing, individuals can reduce financial stress and build wealth over time.

Protection against Financial Fraud and Scams

Financial literacy can help individuals recognize and avoid financial scams and fraud. With knowledge of financial products and services, people are less likely to fall prey to fraudulent schemes and can protect themselves from financial harm.

Better Career Prospects

Financial literacy can improve career prospects by enabling individuals to make informed decisions about job offers, negotiate salaries, and plan for retirement.

Positive Impact on Future Generations

Financial literacy is a critical life skill that can be passed down from one generation to the next. By teaching children and young adults about financial concepts and best practices, parents can help set their children on a path to financial success.

So why is financial literacy important for youth?

a financially literate youth

Financial literacy is essential for young adults, including millennials, as they navigate an increasingly complex financial landscape.

Lack of financial education makes it easy for youth to pick up bad financial habits

Financial literacy can help youth to avoid developing bad financial habits that can have long-term consequences. Without proper financial education, youth may fall into patterns of overspending, accumulating debt, or failing to save for the future, setting them back financially for years to come.

Increase your odds of fulfilling financial goals

Furthermore, financial literacy can help youth increase their odds of fulfilling their financial goals. Whether it's saving for college, buying a car, or starting a business, having a solid understanding of personal finance can help youth create a plan to achieve their goals and secure their financial future.

How to learn financial literacy

Learning financial literacy involves a combination of resources and actions. Here are some strategies to improve financial literacy skills:

  1. Read financial literacy books or take online courses to increase your knowledge on personal finance.
  2. Attend financial literacy seminars or workshops to learn from experts in the field.
  3. Create a budget and track your expenses to gain a better understanding of your finances.
  4. Start investing and building wealth through diversified portfolios and retirement accounts.
  5. Seek guidance from a financial advisor or mentor who can help you create a plan to achieve your financial goals.
  6. Practice good financial habits, such as saving money, paying off debt, and avoiding unnecessary expenses.
  7. Stay informed about financial news and developments that may impact your financial situation.

Overall, learning financial literacy requires a commitment to continuous education, proactive planning, and responsible decision-making. With time and effort, anyone can develop the skills and knowledge necessary to make smart financial choices and achieve their financial goals.

A personal story: the power of interest

a personal financial journal

For years I took on student loans without batting an eyelash. Even my $81,000 total didn’t bother me too much because I’d pay it back “eventually.”

It wasn’t until I actually calculated the interest that I realized how much I would pay over time.

At my worst point, I was paying more than $300 per month in interest alone, and it killed me.

That was the kick in the pants I needed to take action on my student loans.

On the flip side, interest can be a very powerful tool to help build wealth. Compound interest, or interest that accrues on interest, can help millennials build a hefty nest egg if they start saving for retirement now. Millennials can do that through an employer-sponsored 401(k), or by creating an Individual Retirement Account (or IRA, for short).

Let me give you an example. If at age 25, you can only afford to save $50 a month, and you assume a very conservative 4 percent return monthly, at age 65 you would have a whopping $240,000, according to this handy compound interest calculator. And chances are you would save more because you would be earning more over this time. Fifty dollars is a night out. I think it’s well worth the sacrifice.


Learning about personal finance motivated me to start tracking my income and expenses. I was shocked to find how much I spent on $5 coffees and eating out— I love these simple pleasures, but no one needs them every day. Once I realized I needed to spend less than I earned and I actually saw the numbers in black and white, I started to make changes in my habits.

I began to calculate how much of my income was being spent on certain items. Instead of looking at that meal at its current price, I thought in terms of, “That’s an hour of work” or “I’d have to work a full day to pay for that.” That financial mentality changed everything for me.

In addition, I started to calculate how much of my income was going toward rent. Typically, you want your rent to be 30 percent or less of your income. When I lived in NYC, my rent was 50 percent of my income. Because of that, I needed to make changes elsewhere in my budget.

Millennials have a lot of competing priorities, from paying off student loans to saving for retirement or even making a down payment on a property. Learning how to manage your money can help you accomplish those things with the least amount of stress.

You Can Learn, Too

If you’re a millennial looking to become financially literate, start by taking the following steps:

  • Track your income and expenses.
  • Know how much you owe (student loans, credit cards, etc.).
  • Calculate interest on your debt.
  • Begin investing through a 401(k) at your job. If your job doesn’t offer one, consider investing through a traditional or Roth IRA.
  • Once you’ve started, keep track of your retirement savings with tools like Bloom.
  • Read financial articles, books, etc.
  • Save money. Even $25 a week makes a difference over time.
  • Pay it forward. Someone gives to you, and you give to the next person. This could be time, money, or expertise. Let’s face it, it just makes the world a better place.

All these steps are essential in developing financial literacy, but the most important action you can take early in your career is investing.

“Earnings, consumption, and saving come pretty naturally as your career grows over the years. However, investing is the one area that most millennials are challenged with once they make money,” says Samuel Rad, a UCLA instructor and financial adviser in Los Angeles.

“Most millennials came into the workforce right as the Great Recession took place, and therefore are very skeptical of investing, especially in the stock market,” Rad continues. “However, in order to build maximum wealth, it is essential to get familiar with investing — and the younger you start, the better off you are.”

In short, developing a balanced budget comes naturally as you progress in your career. But early, low-risk investments can do you a world of good for your future financial wealth.

Why financial literacy is important: the bottom line

There isn’t much time to waste. The sooner you learn to manage money, the happier you’ll be.

Financial education helped me go from paying only the minimum on my student loans to now putting several thousand dollars a month toward debt. Imagine what changes you can make in your life simply by strengthening your own financial awareness.

The learning doesn't need to stop here.

Bay Street Capital Holdings

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Bay Street Capital Holdings is a Black-owned, independent investment advisory, wealth management, and financial planning firm that manages portfolios with the goal of maintaining and increasing total assets and income with a high priority on managing total risk and volatility.

The founder, William Huston, is recognized as Investopedia’s Top 100 Financial Advisors for 2022. Bay Street was founded to advocate for diverse and emerging fund managers and entrepreneurs and was selected as a finalist out of over 900 firms across the US in the category of Asset Manager for Corporate Social Responsibility (CSR).








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