Wikipedia describes financial literacy as “the ability to understand how money works in the world: how someone manages to earn or make it, how that person manages it, how he/she invests it (turn it into more) and how that person donates it to help others. More specifically, it refers to the set of skills and knowledge that allows an individual to make informed and effective decisions with all of their financial resources”.
In other words, financial literacy can be alternatively understood as how individuals use their financial resources to achieve well-being and happiness and security in their money/wealth, their way of living or their lifestyle and their savings or investments.
Affected by how individuals lead their lives
Thus financial literacy is affected by how individuals lead their lives, what choices they make, how they execute their wishes – financially and otherwise. It is not a picture of just what their finances comprise of, or how much financial education they have acquired. It is much broader and wider in its coverage.
And what is also true is that financial well-being is not directly proportional to level of income or affluence – a person with a lower income may be at a higher level of financial well-being than one who is richer in monetary terms.
Those who are financially literate can exercise their choice of what they desire to do in order to enjoy life – they can go on holidays or see a film or eat at a restaurant or donate money to charity or help friends and family. This financial freedom that they have affects their financial well-being. It is an indication of how they live and what life-values they consider to be important.
Level of financial literacy one has
So the level of financial literacy one has will guide people on what kind of life to lead, what activities to pursue, what career to opt for. It has an influence on how to save and invest money and provide for the family. It has an impact on how to develop one’s business or career.
It also gives an idea of the correct path to follow for personal growth. Financial literacy helps decide where and how to help others financially – which charities to choose and which ones to avoid. Since financial literacy plays a significant role in how people save, invest, borrow or manage their finances, it also has an effect on their ability to enhance their wealth and income which in turn has serious implications on the lifestyle choices they make.
Financial literacy is thus not restricted to just managing one’s money. It is an aid to entrepreneurs to manage not just their but also other people’s businesses and enable them to make profits. It gives people an understanding of what needs to be done to attain and realize a lifestyle that is balanced in financial terms, that is growth oriented, that is morally fair, that is decent and dependable, that is full of love, happiness and joy and sustainable in all its positivity.