What Is Financial Literacy?

Make your money work hard for you, so you don’t have to work hard for money. Would you like to know how to maintain and save money for future? Here are few guidelines on how to learn skills in money management.

TCM Staff

16th March 2020

Financial literacy is possessing the knowledge and financial skills in managing money, that fulfills individual personal and family goals. Managing money makes everyone strong and can be more confident to do anything in your life.

It is very important to save money which will be used for the future like it may be useful for upgrading children, parents’ health issues, etc., It enables people to understand what is needed to achieve a lifestyle.

Why is it Important?

Many people fail to plan ahead and they take on money risks.

  • Financial literacy benefits all the age groups irrespective of young generations to old generations.

  • For the young generation, it provides a tool for budgeting, saving, so that they learn how to control the money.

  • Financial education helps to manage household financial situations and/or for children’s education.

  • Understanding the concept of how money works, you can achieve confidence in managing your personal budgets.

  • When one knows how to earn and save money, it can achieve financial stability.

  • It also helps entrepreneurs leverage other people’s money for the business to generate sales and profits.

Components of Financial Literacy

Financial literacy is for all age groups, and the core of personal finance is simple. Here are three main components:


Having a budget plan is the most important aspect in day to day life. Nowadays, we have many apps and websites to create our own budgets.

For example, Pooja has decided to create a budget to organize her finances and prepare for any financial emergencies. Her first step is the Net income, i.e. how much money is left over at the end of each month. This amount is found by using the following equation:

Net Income = Total Revenue - Total Expenses

Without proper planning, it’s hard to save money these days, so learn the budget basics and have a healthy lifestyle.

Establishing an Emergency Fund

Maintaining a savings account can help you avoid borrowing. Best kept in a savings account, an emergency fund is useful for unpredicted expenses. An emergency fund is a bank account with money set aside to cover large, unpredicted expenses, such as:

  • An emergency room visit

  • Home-appliance repair or replacement

  • Major car fixes

  • And, costliest of all, unemployment

Understanding Interest Rates

An interest rate is how much interest is paid by borrowers for the money that they borrow. It is usually a percentage of the sum borrowed.

Understanding the ins and outs of interest can impact your finances more than you likely realize, so it’s an important concept to gain a better understanding of early on in life.

Financial Literacy Dimensions




Money and Transactions

Identifying financial information


Planning and managing finances

Analyzing information in a financial context

Home and Family

Risk and reward

Evaluating financial issues


Financial landscape

Applying financial knowledge and understanding


How to Manage Your Money?

Money management comes from your personal experience and should be given the first priority. It’s not about how much money you earn, but what you do with the money matters.

  • 5% of the planet is basically generational wealth

  • 15% of the people are the middle class, they got a house, they got savings, they go on vacations and they are comfortable.

  • 80% of people when they are older either a) have to work to make money or b) dependent upon the government or family to subsidize their lifestyle.

Things to Remember

  • Put a limit to your daily expenses so that they do not cross it.

  • Ask for discounts/offers and any complimentary services.

  • If you have earned a certain amount per month, keep 70% of your money in savings and the rest for other expenses.

  • When you are buying any valuable thing, check for other payment options such as zero-interest EMI.

Money in Bank

If you have a bank account and paycheck, you can direct your money and secure it in the bank so that you can get interests yearly which is also one of the best ways of saving your money.

Having an account secures your money and has a lot of benefits of convenience and safety. A debit card provides payment proofs so that you can have transaction records showing where the money transfers.

If you have any money in the account (savings account), you can use them for your financial emergencies.

For saving your salary in a primary account, you have many choices and generally, people choose a debit card or savings account or both. Carrying these cards helps in paying monthly bills avoiding taking cash around. Learn to understand between luxuries and necessities.

Financial Literacy for High School Students

Schools should add in their curriculum about this financial literacy as one of the classes along with other subjects. Teachers should teach their students about the importance of saving money so that they can manage both at home and in school.

How to Manage and Learn Money Skills?

Learning not only takes place in the classroom. Every day is an opportunity to spread knowledge and awareness of managing money skills which can be adapted easily.

In-School Use

  • Class assignments in existing courses.

  • Units of study in existing courses.

  • Self-contained courses to enhance student knowledge of money management and personal decision-making.

Community Use

Money management skills can also be easily adapted to workshops and community seminars. Community centers, Parks, Libraries, churches, and other institutions may use these materials to provide programs related to personal financial decision-making.


If there is any betterment in financial literacy, this will have an impact on everyone and can achieve a better future. Knowing how to manage money is not easy, but once mastered, it's no tough.

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