Become Financially Literate: 5 Things you Should Know

Wed, Sep 19, 2012

Financial Advice

Most of us would consider literacy (the ability to read and write) as being one of the most important skills that you can have in life. However, it is also extremely important that you are financially literate, if you hope to have a successful life and live within your means. Studies show that most Americans have a poor Financial IQ, so here are 5 top tips for becoming financially literate:

 

1. Understand yourself and your needs

While you should listen and consider the advice of others, it is important to remember that we are all different, and it would be unwise to blindly follow the advice of someone with a completely different income level, family situation and risk tolerance. If you’re young, then it is likely you will be able to take on a little more risk than a married couple with 3 children, so always ask yourself, before you do anything, whether it is right for you. Similarly, some people can keep multiple credit cards with no problem at all, while others cannot resist the temptation of maxing it out; ensure that you are fully aware of your own strengths and weaknesses.

 

2. Always consider the source

It sounds obvious to tell you that you should never plunge blindly into any investment or purchase, but you’d be surprised by how many people are rapidly drawn in by attractive offers. Never accept anything you see or hear as fact without questioning and verifying it first, and consider the motive behind the information. Most of the time, financial decision-making means that someone is trying to sell you something, or persuade you to hand over your money – so remember that they are doing everything possible to make the deal look attractive. And remember – if it seems too good to be true, that’s because it is!

 

3. Don’t be blinded by figures

It can be far too easy to get caught up in the figures, statistics and charts, which may initially seem to meet your needs, but this may change if you investigate them further. Always make sure that you pay attention to what the figures are actually telling you.

 

4. Attend local finance classes and seminars

There are plenty of free finance seminars which can give you many pointers, or, if you prefer, you can buy a ticket to listen to a big-name speaker, if this will inspire you. Just remember that there is always help out there – do not be afraid to ask questions at the bank or credit union if you’re unsure of anything.

 

5. Collect as much information as possible

There are plenty of ways you can improve your financial literacy from the comfort of your own home. There are a range of books, magazine, television shows, websites and even smartphone apps that can help you with your finances. As with anything, just be initially skeptical of anything you are told, and check the information through another medium – if a book, website and TV show all tell you the same thing, it’s much more likely that it will be correct.

Sarah Rawson contributed this guest post. Sarah is a freelance writer and is also studying a Masters of Finance . Her articles mainly appear on higher education blogs.

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