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.
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 like you’re falling behind, but don’t let that scare you.
“You’re not the only one who feels this way.”
The feeling of being overwhelmed by money is a common concern for millions, and we’ve got you covered.
In the blog, we will explore seven essential concepts of financial literacy to help you manage your money effectively while grasping important financial skills such as budgeting, investing, and saving.
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.
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 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
A budget is a simple plan that 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 enough savings in case of an emergency.
A helpful budgeting rule that most people incorporate into their daily lives is the 50/30/20 rule, where
- 50% of income is allocated to essential needs
- 30% of income is set aside for wants
- 20% of income is dedicated to savings
“Why can’t I stick to a budget?”
Following your budget can be challenging, especially if your plans are unrealistic.
The key to having a solid budget plan is to set S.M.A.R.T. goals.
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.”
With the perfect SMART goals to look up to, you will be more likely to stay motivated and committed to achieving them.
Determine Your Money Personality
I know what you’re thinking, “Does money really have a personality?”
And the answer is yes. Understanding your money personality is a vital component of financial literacy. Your habits, mindset, and awareness all contribute to the financial decisions you make in your daily life.
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.
Use Your Money Wisely
What Is A Credit 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 you find yourself in a situation where your credit score is lower than the standard range, there are 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 is 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.
Additionally, don’t fall for the common misconception that savings and investing are 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, it’s easier than ever to fall into the hands of scammers.
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 promise high returns with no risk.
However, don’t let this worry you. You can still protect yourself by remaining cautious, using strong passwords, and avoiding sharing any personal information.
Keep yourself safe and protect your hard-earned money from scammers.
Protect What You’ve Earned
Till now, we have discussed potential ways to save and invest in wealth. It is also crucial to protect what you have earned, whether from scams or unexpected events.
Insurance: Something to Consider
Bad things happen; that‘s life.
All that matters is that you are prepared.
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
If you’re ready to take the next steps, explore our blog on life insurance for more information.
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.
