Financial Literacy Concepts You Need To Know In 2025
Financial Literacy & Its Importance
Have you ever scrolled through social media to find your friends and family posting about their perfect lives, upgrading their lifestyles, buying new homes and cars, indulging in luxury, and traveling the world?
Meanwhile, you sit on your couch, pondering where all your hard-earned money goes - it’s frustrating, right?
Each time you receive your paycheck, you finally feel a sense of relief. But then reality sets in, and the responsibilities hit hard: rent is due, groceries need to be bought, gas is required, loans are to be paid, and don’t forget that birthday gift for a friend.
It often feels as though you are falling behind, and soon the nagging doubt of whether you are making the wrong choices starts to creep in. You long for financial peace, yet you find yourself uncertain of where to begin.
If this resonates with you, here's the reality: you are not alone.
The feeling of being overwhelmed by money is a common concern for millions, not due to irresponsibility, but because financial literacy is a concept that is rarely taught. Not in school. Not in college. You are expected to know how to manage your money while also dealing with the constant stress from jobs, bills, and daily necessities.
This is where the importance of financial literacy comes into play.
In simple terms, financial literacy is defined as the ability to manage your money effectively while grasping important financial skills such as budgeting, investing, and saving.
When you master financial literacy, you deepen your understanding of how money works, learning not only how to earn and save but also how to spend wisely, borrow responsibly, and make informed investment choices.
Let's be clear, you do not need to be wealthy or a financial expert, nor do you need to have a passion for numbers to take control of your finances. All you need to know is the basics of financial literacy and a basic roadmap to relieve stress and build the life you truly desire.
The purpose of this blog is not to deliver an extensive lecture on financial literacy but to provide a practical guide to understanding money in a way that applies to everyday life.
If you have ever found yourself wondering questions like:
“How do I come up with a budgeting plan?”
“How do I start saving for the future?”
“How can I ensure myself a successful financial future?”
You are exactly where you need to be.
In the upcoming sections, we will explore seven essential concepts of financial literacy that are often overlooked, misunderstood, or just plain confusing:
Budgeting your money efficiently
Setting up SMART financial goals
Understanding your money personality
The world of credit (How to prevent having a bad credit score)
Investing and saving for retirement (Starting early)
Spotting those sneaky scams
Insurance (How it provides financial protection)
Whether you are just beginning or trying to enhance your money management skills, financial literacy gives you the knowledge to make confident, informed decisions rather than relying on guesses.
The earlier you start educating yourself about financial literacy, the better your chances of achieving future financial success. The purpose of this blog is not to deliver an extensive lecture on financial literacy but to provide a guide to understanding money in a way that applies to everyday life.
You deserve a bright and secure financial future! That's why understanding money management is essential.
What Is Budgeting?
Why Set S.M.A.R.T. Financial Goals
To begin with, a budget is a simple plan that helps you balance and manage your money effectively. It shows how much money you have, how much money you have to spend, and how much money you need to allocate to save for the future.
Having a well-defined plan can reduce future financial stress and anxiety and avoid several problems, including:
Overspending
Debt
Running out of money
A budget offers a clear picture of your financial situation. It helps you determine how much debt you need to pay off, how much you should save for specific goals, whether you are prepared for retirement, and if you have a safety net in case of an emergency. These are all important questions that a budget can help you answer.
A crucial budgeting rule that most people incorporate into their daily lives is the 50/30/20 rule.
Here is a simple breakdown:
- 50% of income should be allocated to essential needs (rent, groceries, bills, and transportation).
- 30% of income can be spent on wants (luxuries, entertainment)
- 20% of income should be set aside for savings (emergency funds to cover unexpected medical or personal expenses, helping someone in need, saving for future purchases, or investing for retirement).
One of the most frequently asked questions is “Why can’t I stick to a budget?”
And this is primarily because most budget plans are unrealistic. They often do not account for actual income, lifestyles, or spending habits. Others may simply feel discouraged or struggle to maintain consistency with their plans.
The key to following the 50/ 30/20 rule successfully is to prioritize and adjust.
If, suppose, the "needs" category exceeds its limit, take the time to identify areas where you can reduce spending. Be conscious of your "wants" as well. Consider whether you can cut back on non-essential items to prevent overspending to allocate more funds towards savings.
Think of budgeting like using GPS. Without knowing where to start or where to go, you risk not only getting lost but also placing yourself in a stressful situation.
Similarly, when it comes to budgeting, it is crucial to be aware of your current financial situation, create a realistic plan to approach your goals, and be prepared for any unexpected expenses.
Now, how exactly do you create a realistic plan? This is where setting S.M.A.R.T. goals becomes invaluable.
S - Specific: What exactly do you want to achieve?
M - Measurable: How will you know when you have reached it?
A - Achievable: Is it realistic based on your current financial position?
R - Relevant: Does it align with your values and interests
T - Time-bound: When do you want to achieve this by?
To maximize your budget effectively, it's essential to establish clear financial goals. While budgeting helps you determine, “How much can I spend or save?” it’s also important to ask, “What am I saving or spending for?”
An example of a “SMART Goal” would be:
“I want to save $600 in the next 3 months by putting aside $50/week.”
ON the other hand, a“Not so SMART Goal” would be:
“I want to be rich in the future.”SMART goals provide clarity, structure, and motivation. It is essential to establish small, measurable objectives that align with your priorities and interests. Whether you're aiming to save for a house, a car, or even retirement, it is important to set goals that resonate with you.
You will be more likely to stay motivated and committed to achieving them.
Determine Your Money Personality
Have you ever wondered why budgeting seems straightforward for some, while frustrating for others? Or why some people are naturally good at saving? The answer often depends your money personality.
Understanding yourself is a vital component of financial literacy. It is essential for effectively managing your money and establishing realistic financial goals. Your habits, mindset, and awareness all contribute to the financial decisions you make in your daily life.
You might find yourself asking, "What is my money personality?" or "Does your personality affect your financial decisions?”
Let’s break it down.
To determine which personality type best fits you, answer the following five questions and keep track of your points according to your chosen options:
A = 1 point
B = 2 points
C = 3 points
D = 4 points
Money Personality Quiz
When you receive money as a gift, you are most likely to...
A) Spend it right away on something you want.
B) Save it for something you need.
C) Invest it or donate it to a good cause.
D) Split it between spending, saving, investing, and donating.When you are shopping, you are most likely to...
A) Buy whatever catches your eye, regardless of the price or quality.
B) Compare prices and quality, and look for discounts and deals.
C) Avoid shopping unless it is necessary, and buy only the essentials.
D) Have a budget and a shopping list, and stick to them.When you have a financial goal, you are most likely to...
A) Forget about it or give up on it if it takes too long or requires too much effort.
B) Work hard and save diligently, even if it means sacrificing other things.
C) Seek advice and guidance from experts or mentors, and follow their recommendations.
D) Plan and track your progress, and reward yourself for reaching milestones.When you face a financial challenge, you are most likely to...
A) Ignore it or hope it goes away, and continue spending as usual.
B) Cut back on your expenses and look for ways to increase your income.
C) Ask for help from your family, friends, or professionals, and accept their support.
D) Analyze the situation and come up with a realistic and flexible solution.When you think about your financial future, you are most likely to...
A) Live in the moment and not worry about tomorrow.
B) Have a clear vision and a detailed plan for achieving your goals.
C) Be optimistic and confident that things will work out for the best.
D) Be cautious and prepared for any possible risks or opportunities.
Add up your total score from all 5 questions to check which of the following ranges you fall into:
Total Points: 5 – 9
Personality type: Spender
You enjoy spending money and living in the moment, but you might struggle with saving for the future, debt, or excessive overspending.
Total Points: 10 – 14
Personality Type: Balancer
You excel in managing your finances and making smart decisions. However, your cautious nature may cause you stress or lead to missed opportunities.
Total Points: 15 – 19
Personality Type: Saver
You are highly skilled at saving money and achieving your financial goals. However, you might overlook your current needs or wants and find it difficult to share or spend money on yourself or others.
Total Points: 20 – 25
Personality Type: Investor
You are savvy and strategic with your finances, taking risks to grow your wealth. However, this confidence might cause you to neglect some of your current needs.
If you'd like to have more detailed information about your personality, feel free to access the link below: https://sorted.org.nz/tools/money-personality-quiz/
Navigating Your Financial Future
Achieving financial success relies heavily on maintaining a strong financial foundation, which includes your credit history and your long-term financial goals, particularly investing and saving for retirement. A higher credit score combined with early investment can provide you with much more options and security as you progress through life.
What Is A Credit Score & How To Improve A Bad Score?
A credit score is a measure of how likely you are to pay for things on time. A credit score reflects your complete credit history.
Length of Your Credit History (How Much Experience Do You Have?)
How much money do you owe back?
Have you ever filed for bankruptcy?
What types of credit do you use?
Do you make your payments on time?
Most lenders rely on credit scores to evaluate an individual's trustworthiness in repaying borrowed funds and meeting payment deadlines. These scores allow lenders to make smart decisions regarding loan approvals, interest rates, and credit limits.
In the United States, credit scores range from 300 to 850.
If your score falls within the average range of 700 to 800, you are in a good position. In this range, you are more likely to receive approval for most loans you may need, often accompanied by lower interest rates.
While lenders have their own criteria for determining whom to lend to and at what rates, a higher credit score typically increases your chances of qualifying for a loan.
A credit score ranging from 600 to 700 is regarded as acceptable but not optimal. While you may qualify for a loan, you are likely to face slightly higher interest rates.
Scores below 600 are considered poor, which can result in either being denied loan approval or facing extremely high interest rates.
Now, if you end up in a situation where your credit score range in below 600. Luckily, there a ways to improve it.
Ensure that you make your payments promptly, as timely bill payments constitute 35% of your credit score.
Keep your credit card balances low; credit utilization accounts for approximately 30% of your credit score. Maintaining a low usage demonstrates to lenders that you manage credit responsibly, which can positively impact your score.
The length of your credit accounts for 15% of your credit score. You need to ensure your account demonstrates a history of good money habits.
Different types of credit cards make up about 10% of your credit score. Lenders like to see how you handle different types of credit responsibly.
Avoid opening too many new cards. A credit inquiry happens when a lender checks your credit report. There are two types: Soft inquiry and Hard inquiry.
Soft inquiry: Doesn’t affect your credit score.
Hard inquiry: Can slightly lower your score
Ways To Invest & Build Wealth For Retirement
Once your credit score is in good shape, the next step is to focus on your long-term goals: investing and retirement.
To make this simple, let's take a look at a scenario involving two colleagues, Ava and Jasmine, who both work at an insurance company. Ava decided to contribute $30 from her paycheck to her retirement fund each month. On the other hand, Jasmine chose not to contribute any funds at that time, planning to start later.
After ten years, Jasmine finally decided to contribute $50 monthly to her retirement fund. However, when both women retired after 20 years, Ava had significantly more money in her account than Jasmine.
Why is this?
It is because the earlier you start saving, the more time your money has to grow through compound interest. This means you earn interest not only on your original investment, but also on the interest it generates over time.
Take advantage of retirement plans like a 401(k)
Open a Roth IRA if you qualify; your money grows tax-free
Make small, consistent investments. Even the smallest amount can make a huge difference over time.
I would also like to address a common misconception that savings and investing are not necessarily the same thing.
Investing specifically refers to placing your money into assets, bonds, stocks, or mutual funds with the goal of increasing their value over time. When investing, it is important to consider the level of risk involved and the potential returns.
Investments in treasury bills or bonds are generally considered safer, as they carry less risk; however, they typically offer lower returns due to their lower interest rates.
Investing in individual stocks or cryptocurrencies involves a higher level of risk, but the potential returns can be substantial if the investment performs well.
Fraud Awareness
As technology continues to advance, scammers targeting individuals have increased significantly. It is essential to recognize any red flags present in texts, emails, calls, and social media advertisements.
Common scams to watch for:
Phishing emails and texts. Never click on suspicious links; you risk getting hacked.
Business and job opportunity scams. Opportunities that sound too good to be true or demand money.
“You’ve won a prize!”. Would ask for your bank details.
Fake investment offers: Either too good to be true or promises high returns with no risk.
However, do not let this worry you. Here is how you can protect yourself:
- Be cautious of unsolicited messages.
- Use strong, unique passwords.
- Avoid sharing personal information, such as your Social Security number, insurance details, birthdate, or any other sensitive data.
- Regularly monitor your bank accounts and credit reports.
You have worked hard to earn your money, so take the time to keep yourself safe!
Protect What You’ve Earned
Till now, we have discussed potential ways to budget, save, and invest in wealth. It is also crucial to protect what you have earned, whether from scams or unexpected events.
You need to be prepared for the unexpected!
Insurance: Something to Consider
Bad things happen- that‘s life.
All that matters is that you are prepared.
To obtain insurance, you agree to pay a premium. A premium is the amount you pay, either monthly or annually, to keep your insurance coverage active.
It is also important to understand co-pays, which indicate that while insurance covers most of your medical expenses, you are still responsible for paying a deductible ( a fixed amount you must pay out-of-pocket before insurance covers the rest).
There are many different types of insurance; however, the most common ones are:
Medical insurance- Medical bills can be devastating
Life insurance provides a death benefit
Car insurance protects you in case of accidents or damage.
Property insurance protects your property in case of damage
Business insurance protects your business from financial losses due to unexpected events
On A Final Note
Financial literacy is not about achieving perfection; rather, it is an essential life skill.
This blog provided you with an overview of the key concepts you need to master this skill. Whether you are just beginning to budget, trying to understand your credit score, or finally considering retirement, let me tell you that you are not falling behind.
If you are ready to take the next steps, explore our blog on life insurance to learn how you can protect your family.
No pressure, just progress.
Disclaimer: All content on sjmcares.com and its subpages is intended for informational and educational purposes only. It should not be interpreted as direct financial, insurance, or legal advice. Every person’s situation is unique, call 917-373-0117 to speak with a licensed advisor for personalized guidance.
Financial Literacy in 2025 Budgeting and Financial Literacy
