Financial Literacy for Beginners: The Basics

By Lacey Langford
Reviewed by: Lauren Bringle, AFC®
Published on: 11/17/2020

Financial literacy for beginners is essential. You don't need to be a rocket scientist to understand money. And you don't have to be a financial expert to experience the benefits of financial knowledge. In fact, anyone can learn finance for beginners in order to handle their money better.

Learning the basics of money can help you avoid financial problems, reach your goals, and increase your quality of life. The sooner you start gaining basic financial skills, the sooner you will experience the benefits. Once you have a better understanding of basic financial concepts, you'll be able to create a budgeting and financial plan for your future.

According to the National Financial Capability Study[1] conducted by the Financial Industry Regulatory Authority (FINRA) Investor Education Foundation:

“Americans demonstrate relatively low levels of financial literacy and have difficulty applying financial decision-making skills to real-life situations.”

When they asked participants from around the country five basic personal finance questions, over 66% could not get more than three of the questions right.

The same survey shows that over 46% of people do not have enough money saved for financial emergencies.

Where do you stand?

If you want to learn how to become financially literate, this article is for you. Here is a how-to start building your basic financial literacy guide for beginners to start building and improving your money knowledge.

In this article

Components of financial literacy

Basic financial literacy is your knowledge and understanding of money. It's your ability to recognize, understand, explain, and apply fundamental areas of personal finance.

Literacy in finance also means having confidence with and knowing the value of money.

What are the main components of financial literacy?

Learning about money means knowing and accomplishing everyday money management like paying bills on time, managing the money you make, and saving for your retirement.

It’s also knowing the difference between a need or a want like a roof over your head versus your 20th pair of boots.

Some of those fundamental areas of personal finance include:

Why is financial literacy important?

Money doesn’t buy you happiness, but it can make your life less stressful and more fun.

When you don’t have money, even the smallest problem becomes a financial crisis.

On the other side, when you do have money, it makes it so everyday life doesn’t become a problem.

And when issues do come up—because they will—money makes them more manageable and less expensive to solve. You need to understand money to make smart decisions that will help you in life, not hurt you.

The blues great B.B. King once said:

“The beautiful thing about learning is that nobody can take it away from you.”

Learning about money is no different. Once you have it, the knowledge is yours to use in a way that benefits you.

What explains the gender gap in financial literacy?

According to the RAND American Life Panel[2], the gender gap in financial literacy can be caused by factors such as:

  • Education
  • Marital status
  • Income

Seeking out professional financial advice is a way to close the gender gap when it comes to financial literacy skills. A financial coach or credit counselor can give you financial advice to help you learn and grow your financial capability.

Benefits of financial literacy

The most significant benefit of financial literacy is financial security.

With education and experience with money, you’re able to secure your financial future. It gives you financial freedom.

Financial freedom is when you can do what you want, where you want, when you want because you have the money to do it. Your understanding of money allows you to have control over your quality of life. It can help you save and invest your earnings to build wealth.

Financial education can also prepare you for opportunities like tax returns and inheritance. Literacy in finance can help you develop things like a financial windfall plan or help you with retirement planning.

Here are some of the benefits that can come from financial education.

  • Emergency savings
  • Proper insurance
  • Debt reduction and elimination
  • Retirement savings
  • Follow opportunities
  • Retirement planning
  • Reach life goals
  • Help others

Why do schools overlook the benefits of financial education?

Many different factors play into why financial education is not made a priority in schools.

First, financial education in schools is a state decision. So it’s up to individual states to add financial knowledge to the curriculum.

Second, teachers may not be qualified to teach financial concepts, since that would require additional training or bringing in a financial professional.

Third, financial literacy isn’t considered a priority. Personal financial management is another subject to add to the school curriculum, so it often gets put on the back burner.

How do you develop financial literacy?

Use every available resource you have to learn financial management and literacy.

Preferably use free resources first, but there are also some low-cost options. You want to find reputable sources to get your financial education from.

As a financial coach, one of my favorite free financial education resources was created by the Federal Reserve Bank of Dallas. It’s called Building Wealth.

Building Wealth is an online course and guide to help with:

  • Goal setting
  • Managing your income
  • Budgeting
  • Saving
  • Investing
  • Building credit
  • Managing debt
  • Protecting your wealth

I like that it covers the core principles you should know about money, and allows you to learn at your own pace.

Here are additional financial education programs to help you learn. is the program developed by the U.S. Treasury Department’s Financial Literacy and Education Commission. They have lessons on their five building blocks: earn, save, invest, protect, borrow, and spend.'s tool page has calculators, worksheets, and a checklist that can also help you learn.

Community College

Your local community college or tech school most likely offers a personal enrichment or continuing education class on personal finance.

The National Endowment for Financial Education (NEFE)

At the NEFE, you will find a hub of information for financial education[3]. NEFE’s mission is to be an independent “champion” for financial education. They offer numerous courses and guides for youth, college students, and young adults.

You can find all of the NEFE's educational initiatives at this link.

Jump$tart Clearinghouse

At Jump$tart Clearinghouse, you can find an online library of resources[4] to help you learn about personal finance.

The Wallstreet Journal (WSJ)

This newspaper was required reading when I was getting my undergraduate degree in finance. It can seem overwhelming if you think of reading the entire paper, so don’t. Just read articles that interest you.

Getting a full subscription to the WSJ is a little pricey, so I recommend getting the free trial or the WSJ online version to keep the cost low.

Love Your Money

This is an online course developed by university professors to help college students learn money management skills.

Personal Finance Magazines

Magazines like Money and Kiplinger’s Personal Finance are a great way to get your financial education in bite-sizes.

Personal Finance Books

You can use the tried and true learning methods and read personal finance books. There are many excellent finance books out there that can help you learn about money.

I recommend using the public library to find them for two reasons:

  1. Because it will save you money
  2. You can try a bunch of different books

That way, if you start to read a book and can’t get into their style of teaching personal finance, you can move to a new one quickly with no money out of your pocket.

The Self blog

Learn the basics of credit, debt, savings, money management and more at the Self blog.

Here’s a more complete list of resources from Self to help you manage your money.

How does financial literacy affect a person?

Financial literacy can make a person feel good or it can make a person feel bad.

The lack of financial education can lead a person to doubt their money management abilities, which can lead to delaying important financial decisions.

When you don’t have confidence in your financial knowledge, it can cause you to make bad financial choices.

On the other hand, if you feel financially literate it can help you make good choices with your money which leads to financial stability.

Effects of financial illiteracy

Financial illiteracy can have negative impacts on your life and finances. Lack of financial knowledge can lead to poor financial decisions that have long-term consequences.

How many people does the financial illiteracy cycle affect?

The financial illiteracy cycle affects millions of Americans.

According to the National Financial Educators Council’s National Financial Literacy Test Results[5], the average score on a financial literacy exam is only 63.17%.

They also found that over 42% of high school students can’t pass a financial literacy test.

What are the greatest effects of financial illiteracy?

The most significant effects of financial illiteracy are a cycle of debt, lack of emergency savings, and not investing for the future.

Without financial literacy, you may not be paying your bills on time or saving for the unexpected, which can cause overall financial instability.

Financial illiteracy can also cause stress that can impact your health, relationships, and your mindset. So the effects of financial illiteracy are far and wide.

How can you mitigate the effects of financial illiteracy?

You can reduce the negative effect of financial illiteracy by seeking out financial literacy education. Read financial books, find personal finance resources, or talk to a financial professional.

Once you have the knowledge you can grow your money literacy by applying and practicing what you learn. For example you can start budgeting and saving money for emergencies.

Steps to gain financial literacy

Getting schooled up on money doesn’t mean you memorize a bunch of financial terms and definitions.

Financial literacy is having the knowledge, yes, but more so about being able to apply it.

Before you begin the journey on money literacy, think about the personal finance topics you want to learn about.

Do you need to know how to build up your emergency savings, budget, or about invest? Those will be good starting points for learning.

How do you develop financial literacy?

  1. Get in a right money mindset (be positive, let past money mistakes go)
  2. Set goals for what you want to learn and make it your intention to learn
  3. Start with things you know you need help with
  4. Find places where you can learn about money or take financial literacy courses
  5. Make a plan and pick the tools, resources, or the method you will learn from
  6. Create a schedule (put your learning times on your calendar)
  7. Take action (apply your knowledge by paying down debt, repairing your credit, or saving for retirement)
  8. Assess your progress (review what you have learned, the actions you took, and make plans to learn more new things)

How do you teach children financial literacy?

To teach kids about money, start with the basics and start early. You should also make the money lessons age appropriate. The stock market and investing isn’t a lesson you want to start with a five-year old.

Here are some ways to give financial education to children.

  • Teach them needs vs wants
  • Show them how to save money
  • Show them how a budget works and why it’s important
  • Teach them how to pay bills on time
  • Explain what a credit report is and how it can impact a credit score
  • Let them manage their own money and learn from their mistakes

When should you start developing financial literacy?

The sooner you can learn about money, the better! You know the saying, “knowledge is power?” Well, when it comes to money knowledge, it couldn’t be more true.

The more you learn, the more you know, and the more you know about money the better off you will be.

The younger you can start developing your money education, the quicker you will have financial freedom. Learning financial principles young will also help you avoid developing bad habits and costly mistakes.

Even if you didn’t start on the financial learning path early, there is no time like the present. There is a Chinese proverb that says:

“The best time to plant a tree was 20 years ago. The second best time is now.”

Don’t let the fact that you are starting a little later than you wanted to drag you down. Just begin.

Final thoughts

If you are ready to learn and develop your financial literacy you can do it. There are resources to help you every step of the way. No matter your schedule, skill level, education, or financial situation, there are tools and resources you can use to help. The first and biggest step to learning about money is getting started.

Take some of the resources and advice listed here and begin. In a short amount of time, you will be happy you started.


  1. "National Financial Capability Study" on FINRA® Investor Education Foundation
  2. ""What Explains the Gender Gap in Financial Literacy? from the RAND Corporation
  3. "The National Endowment for Financial Education"
  4. "Financial Literacy Resources" on The Jump$tart Clearinghouse website
  5. "Financial Literacy Statistics" the National Financial Educators Council website

About the author

Lacey Langford, AFC® is The Military Money Expert®. See her website, a personal finance blog specializing in the unique world of the U.S. military. Lacey's the creator and host of The Military Money Show, a podcast dedicated to helping the military community with personal finance. She's an Accredited Financial Counselor® with over 15 years of experience in financial planning, counseling, and coaching. Her education includes an Executive Certificate in Financial Planning from Duke University and a B.S. in Finance from the University of North Carolina at Wilmington. As a U.S. Air Force Veteran, military spouse, financial coach, speaker, and writer, she changes people's lives from being fearful of money to having control and confidence with it. See Lacey's profile on LinkedIn.

About the reviewer

Lauren Bringle is an Accredited Financial Counselor® with Self Financial– a financial technology company with a mission to help people build credit and savings. See Lauren on Linkedin and Twitter.

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Written on November 17, 2020
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