Financial Literacy

Financial literacy is the possession of skills, knowledge, and behaviors that allow an individual
to make informed decisions regarding money. Financial literacy, financial education and financial
knowledge are used interchangeably.[1] Financially unsophisticated individuals cannot plan
financially because of their poor financial knowledge. Financially sophisticated individuals are
good at financial calculations; for example they understand compound interest, which helps
them to engage in low-credit borrowing. Most of the time, unsophisticated individuals pay high
costs for their debt borrowing.[2]
Organization for Economic Co-operation and

Development
Raising interest in personal finance is now a focus of state-run programs in Australia, Canada,
Japan, the United Kingdom, and the United States.[3][4] Understanding basic financial concepts
allows people to know how to navigate the financial system. People with appropriate financial
literacy training make better financial decisions and manage money than those without such
training.[5]
Financial Services Authority

The Organization for Economic Co-operation and Development (OECD) started an inter-
governmental project in 2003 to provide ways to improve financial education and literacy
standards through the development of common financial literacy principles. In March 2008, the
OECD launched the International Gateway for Financial Education, which aims to serve as a
clearinghouse for financial education programs, information, and research worldwide.[6] In the
UK, the alternative term "financial capability" is used by the state and its agencies: the Financial
Services Authority (FSA) in the UK started a national strategy on financial capability in 2003. The
US government established its Financial Literacy and Education Commission in 2003.[7]
Definitions of financial literacy
[edit]
There is a diversity of definitions used by bodies such as NGOs and think tanks, but in its
broadest sense, financial literacy is an understanding of money.[8] Some of the definitions below
are closely aligned with "skills and knowledge", whereas others take broader views, and some
are from academic research which is tested and validated:
 Effectively taking decisions about money management and ability to make informed
decisions is called financial literacy.[9]
 To survive in modern society individuals need to have knowledge about financial literacy.
[10]
 Ability to use financial concepts in daily life and make optimal financial decisions is called
financial literacy.[11]
 Financial literacy is an ability to effectively manage the economic well-being of
individuals with knowledge and financial skills.[12]
 The Government Accountability Office definition (2010) is "the ability to make informed
judgments and to take effective actions regarding the current and future use and
management of money. It includes the challenges associated with life events such as a
job loss, saving for retirement, or paying for a child’s education."[13]
 The Financial Literacy and Education Commission (2020) includes a notion of personal
capability in its definition as "the skills, knowledge and tools that equip people to make
individual financial decisions and actions to attain their goals; this may also be known as
financial capability, especially when paired with access to financial products and
services."[14]
 The National Financial Educators Council adds a psychological component defining
financial literacy as "possessing the skills and knowledge on financial matters to
confidently take effective action that best fulfills an individual’s personal, family and
global community goals."[8]
 The OECD's Programme for International Student Assessment (PISA) in 2018 published a
definition in two parts. The first part refers to kinds of thinking and behaviour, while the
second part refers to the purposes for developing the particular literacy. "Financial
literacy is the knowledge and understanding of financial concepts and risks, and the
skills, motivation and confidence to apply such knowledge and understanding in order to
make effective decisions across a range of financial contexts, to improve the financial
well-being of individuals and society, and to enable participation in economic life"[15]

Financial Literacy

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Financial literacy is the possession of skills, knowledge, and behaviors that allow an individual

Organization for Economic Co-operation and

Financial Services Authority

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