Financial literacy is the ability to understand how to manage money matters, including budgeting, saving, investing, spending and borrowing. It may also include becoming familiar with types of insurance, estate planning and forms of investment, such as stocks, bonds and real estate. Learning about elementary personal finance concepts requires basic language and math skills.
The more you know about each area of personal finance, the better equipped you will be to make the right decisions for you and your family. Learning about personal finance as a child or teenager can give you the information needed to make informed choices as a young adult. It can help you better plan for the future as you learn how to set financial goals and build savings and borrowing plans. It may also help you interpret the fine print on loan and mortgage documents as well as investment brochures.
Understanding the rules and requirements of borrowing money helps borrowers know which questions to ask when applying for credit cards, loans, lines of credit or mortgages. Before your first credit application, learn about credit and how different scenarios and activities affect credit ratings and reports. It can help you avoid making credit decisions that may impact your credit history and take years to sort out.
If you feel that you do not know much about finances or investing, you are not alone. According to a study published in 2012 by the Securities and Exchange Commission, average American investors do not understand many of the most basic financial concepts, such as compound interest, inflation, diversification and the differences between stocks and bonds. The good news is that there are many resources available to help you improve your financial knowledge.
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In 2003, the Financial Literacy and Education Commission was created under the Fair and Accurate Credit Transactions Act to help Americans become more financially literate. The Commission can be contacted by phone at 1-888-My Money. In addition, the Commission runs the website MyMoney.gov, a valuable resource with lots of free information to help people learn about and understand all aspects of personal finance.
If you want to learn about managing your debt and credit, visit TransUnion's credit education page. Here, you will find useful information on credit bureaus, credit scores and reports, financial life stages and events and also how to protect yourself from identity theft and fraud.
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