Your financial literacy guide

Financial literacy can have an incredible impact on not just your personal wealth, but your happiness levels and mental health as well. However, a huge proportion of the population either struggles with their own finances or is unsure how to dig themselves out of a financial hole.

To help break down the barriers and get you on the path to financial success, our financial literacy guide will walk you through all the essentials.

What does it mean to be financially literate?

Ultimately, financial literacy simply means that you are able to understand the basic concepts around managing finances. Think budgeting, setting financial goals, emergency funds, superannuation, insurance, personal debt, credit cards and credit scores, and paying bills. Being able to understand these concepts and put relevant strategies into action will help you make better choices with money, and therefore be more self-sufficient in your financial decision-making. The trouble for many people, however, is that they haven’t received the necessary financial education from a young age. And because money lessons are learnt at different life stages, it’s easy to fall into bad habits and then struggle to get out of them for years or even decades to come. With 55% of us anxious about our financial future and one in four worrying about money every single day, according to the Choosi Dollar Report, taking on some simple money management tips can go a long way to better financial literacy.

Why it’s so important to boost your financial literacy

Despite Australia displaying relatively high levels of financial literacy when compared to the rest of the world, there are still millions of Australians who struggle with concepts and strategies around managing their finances. In fact, recent figures suggest approximately 8.5 million adults (or 45% of the adult population) in Australia are financially illiterate. Even worse, almost one in three adults (31%) don’t have enough savings to cover a month’s worth of living expenses, which could be financially crippling in an emergency.

With such a significant number of people struggling with finances every day of their lives, it’s important that you educate yourself about the essentials and even seek outside support whenever you need it – that could be from resources like books and podcasts, financial literacy courses or even reaching out to a financial professional.

As the Choosi Digital Finance Trends 2021 Report proved, there is significant value in boosting your own financial literacy. It will not only help you make better sense of the financial landscape, and therefore give you greater insight into the best strategies to follow for your individual circumstances, but it will also help you avoid the common financial pitfalls that many people fall into.

Defining common financial terms

If you want to be fluent in financial literacy, it pays to know some of the essential terms and their meanings. Here’s just a few:

• Asset: Anything that holds value, such as cash, property, vehicles and investments.
• Budget: A plan customised to your individual income and spending habits, used for the purpose of helping you meet your financial obligations.
• Credit report: A record of your credit history, including loan applications and your financial account history.
• Debt: The amount that you, as a borrower, owe to the lender (e.g. home loans).
• Default: When you fail to meet your financial obligations regarding a debt repayment.
• Emergency fund: Savings that are set aside for unexpected expenses, such as sudden job loss or a medical emergency.
• Interest: The percentage of a loan principal that lenders charge you.
• Principal: The amount of money due on the loan before interest.

5 ways to achieve financial literacy on your own

Australians are becoming more confident about their financial literacy, with just under 70% rating their financial knowledge as either ‘strong’ or ‘very strong’ and 72.5% considering themselves ‘money-smart’. While this may seem overly optimistic when measured against official research, with a little application you can join the growing ranks of the financially savvy in no time.

Whitley Bradford, Associate Lecturer at Griffith University specialising in financial literacy, has five key suggestions to get you started:

1. Consume a variety of resources: “Read personal finance books – for example, Total Money Makeover by Dave Ramsey and Sort Your Money Out: And Get Invested by Glen James. Listen to podcasts – for example, My Millennial Money and She's On The Money. These resources are full of incredible knowledge and you can work through them at your own pace. It's all about learning something new every day and being inspired to make positive changes in your financial situation.”
2. Speak to the experts: “Speak to a money coach or financial planner. They have a lot of knowledge and love to educate people to make better financial decisions. Generally, most financial planners won't charge for the initial consultation as they want to see if you'd be a good 'fit' as a client. The main difference between a financial planner and a money coach is that a planner can provide you with specific financial advice relative to your situation and financial products, whereas a money coach is limited to providing you with general advice only.”
3. Find a mentor: “Find a mentor who has been successful financially so you can learn from their success and failures. It is amazing how much you can learn from other people. It's important to remember that everyone has different financial situations, so what has worked well for one person may not work for you. This is why it's always best to get formal advice from a professional. However, you can upskill how much you know about money and how to manage it by having these types of conversations with a mentor.”
4. Learn to want less: “When you adapt your mindset to wanting fewer material things, you tend to spend less, and you can become more conscious with how you spend your money. When you become satisfied with wanting fewer material things, you will likely have more money to save, invest or to pay down some debt!”
5. Be curious and start budgeting: “Play around with online calculators – debt repayment, superannuation and retirement calculators. Moneysmart has a lot of great resources available.”

The journey to financial literacy begins with a single step. Reading this guide is a great way to get started on that journey. By arming yourself with the right resources and seeking support when you need it, you will start to become more financially confident and competent, which will have positive knock-on effects for the rest of your life.

While you are growing your knowledge of financial concepts and strategies, don’t forget about protecting the lifestyle you’ve worked so hard to build. With Choosi, you can compare a range of life insurance policies online or call 13 55 55 to find out more.