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Welcome to our financial education blog! Our goal is to empower you with the knowledge and tools you need to achieve your financial goals, whether it's saving for retirement, paying off debt, or investing in your future.

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Kyle Brunner
/ Categories: Financial Literacy

What is Financial Literacy?

The goal of our Student Banking Program is to help students become competent and confident in managing money. What does that mean? Another way to say it: to help students gain financial literacy. But what is financial literacy? We searched for a definition, and surprisingly, it wasn't easy to find a clear, agreed-upon definition. We found lengthy descriptions or definitions that other people had created for their own purposes. So, we decided to try making our own definition. Here's what we came up with.

There are three components to financial literacy: Competence, Finance (obviously), and Skill.

So let's break it down. What does it mean to be competent? Competence can be defined as "The quality or state of being competent: such as, the quality or state of having sufficient knowledge, judgement, skill, or strength (as for a particular duty or in a particular respect)." You may notice that "skill" is mentioned within the definition of "competence." We'll come back to that.

What is finance? This is the obvious one, but it's still worth defining. Finance can be defined as "Money or other liquid resources of a government, business, group, or individual." That's helpful, but we can take that definition a step further. It can be further defined as "The system that includes the circulation of money, the granting of credit, the making of investments, and the provision of banking facilities." That's a little more well-rounded, so we'll go with that.

Moving on to "skill." Skill can be defined as "The ability to use one's knowledge effectively and readily in execution or performance." To develop skill in something, you first need to possess knowledge of it and then the ability to apply that knowledge effectively. This definition begs a follow-up question. How do you know if you can use your knowledge effectively? "Effective" can be defined as "producing a decided, decisive, or desired effect." To determine if knowledge is being used effectively, you first need to have a clear goal in mind. And the way you test your ability to use knowledge effectively is by applying it and seeing whether you have achieved your goal or at least made progress toward it. If not, then it's safe to say your knowledge was not used "effectively." For example, let's imagine you are playing baseball. You know what it takes to swing a bat and hit a ball. But every time you swing, you miss the ball. Therefore, you were not able to use your knowledge effectively. If you had, then it would have resulted in you hitting the ball.

Let's review our definitions so far and refine them.

Competence - to have sufficient knowledge

Finance - the system of money, credit, investments, and banking

Skill - the ability to use knowledge effectively

When we combine all three components and their definitions, we have a clear and concise definition of financial literacy.

Here is our technical definition of financial literacy: The quality or state of having sufficient knowledge of money, credit, investments, and banking, which can be applied effectively to achieve your goals. Our practical definition is this: To be financially literate means having enough financial knowledge and the ability to use it skillfully to achieve your goals. 

Ultimately, financial literacy looks different for everyone. It's a spectrum. Whether someone is considered financially literate depends entirely on their goal. That's why setting goals, specific goals, for how you want to use your money is so important. Your goals will indicate which areas of financial literacy you need to learn more about and how deeply you need to understand them. Sometimes, just understanding the basics is enough. Sometimes, you might need more. It all depends on where you're at in your financial literacy journey and the goal you're trying to achieve.

Start your financial literacy journey today with Banzai! A free resource focused on making financial and life literacy education accessible for all. Citizens Federal is proud to offer this exciting free resource to our customers and community.

Get started with Banzai today!

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