So What Do You Mean By Financial Literacy?
Financial literacy — such a buzzword — used by all and understood by few. But why? In the hope of shedding some light on this mystery, we took a deep dive into how some of Australia’s biggest institutions define financial literacy and found that even they don’t agree.
ASIC
Describes financial literacy as ‘financial capability’.
Deloitte
Disguises it as ‘financial consciousness’. And to simplify things, they evaluate each country’s literacy against their own formulated index.
ANZ
Except this time its financial well-being.
Confused?…I don’t expect you not to be.
Our Take
Being financially literate is simply knowing how to make our money work best for us. No matter our circumstances, this almost always tends to follow three simple principles:
- Eliminate loans that aren’t for assets. Clothes, cars and holidays are not assets. Shares, property and education are.
- Save an ‘Emergency Fund’. This is some amount of cash to weather the storms the future has in store. 3 months of expenses is a common number.
- Invest the excess. The aim is to have our passive income from investments each year be greater than our expenses. Work then becomes optional.
Becoming financially literate is much like learning a second language. If we surround ourselves with people who only speak our language, we progress very slowly, and sometimes never become fluent. If, on the other hand, we immerse ourselves in the new culture, we quickly become conversational and before we know it we’re fluent.
So, take up our challenge: spend more time with your finance friends — ask them questions, get them to share their knowledge. Check out online forums like the FIAustralia subreddit or Facebook Group. For Principles #1 and #2 it’s hard to go wrong. #3 is a bit more controversial — and that’s what we’re working on solving here at pearler.
It typically takes less than 6 months immersion to pick up a language. Once you’re fluent, remember to give back!
Disclaimer: At pearler, we pride ourselves on the quality of the financial advice we give, however, this advice has not been tailored for you. You may have unique financial goals, circumstances or needs which make this advice inappropriate, and it is important that you know whether you do. If you’re unsure we urge you to speak to someone you trust who is competent with money and understands your individual needs, whether they be a trusted friend or professional.
