Financial literacy, or the ability to understand how finances work, affects people of all ages and backgrounds. Though most of us know some of the basics, money management isn’t always included in our education or upbringing . Financial literacy in the UK is behind lots of other countries, so what can you do to teach yourself, your friends and your family about financial literacy?
A survey conducted by investment app Freetrade (2021) found that 88% of British people don’t feel confident in their financial literacy skills. Read on to find out more about financial literacy, why it’s important and some hints and tips on how to improve your financial literacy.
What is financial literacy?
Simply put, financial literacy is knowing how to make good decisions when it comes to managing your money. It’s about understanding the financial services and products that are commercially available, including current accounts, ISAs, savings accounts, credit cards, mortgages, personal loans and pension plans.
Learning how to build financial literacy will allow you to put that knowledge into practice. That could include things like:
- Making a budget for your income
- Sticking to it so you can build your savings
- Learning to live within your means
- And not get into unmanageable debt
Somebody who is financially literate will be able to use financial products and services to their advantage rather than being caught out by things like high interest rates.
Why is financial literacy important?
Financial literacy makes you less likely to fall into financial traps. It gives you the tools to avoid snowballing debts and a plummeting credit score. Understanding how financial products work can help you to get the best deals and interest rates, which in turn can save you £1,000s in the long run.
If you’re financially literate, you may also be better at saving. This could be because you understand the importance of giving yourself a financial foundation, and also because you may find it easier to get yourself into a position with enough money behind you to consider investing or planning for the future.
This is particularly important for your retirement, which isn’t always at the top of everyone’s list, but it’s important to think about no matter which stage of life you’re at. Financial literacy can help you to understand and build towards a comfortable pension package before you run into any problems down the line.
Financial literacy for kids
You might be thinking, should schools teach financial literacy? The answer is probably yes, they should. But a survey, commissioned by the Financial Times in 2021, found 90% of people in England felt they’d learnt “nothing at all” or “not very much” about finance at school. So what can you do to give your kids a head start?
Teaching children to be confident about money is really important. It can help them to avoid money problems later in life. For a lot of us, we only learn about money when we make mistakes. That means you’re already starting your journey with money on the back foot! Learning about money early can help you to avoid trouble before it appears
Sure, teaching kids about money can be challenging. It isn’t always the most engaging subject. So you need to find ways to make it practical, fun and relevant. Talk about money openly with your children and find opportunities to get them involved when you’re using money. You could do this when you’re paying a bill at a restaurant or shopping for your weekly groceries in the supermarket.
Give your children a view of the transactions that you're making to help them build familiarity with the process. Show them that things cost money, show them where the money you use comes from, how your card links to your bank account, and let them see how much things cost. It might seem obvious, but it’s important they understand financial accountability.
Let them use their own money. Give your children pocket money and encourage them to set a savings goal for something they want. Create a simple budget with them so they can see how long it will take to get enough money together. This way they can see how savings grow, while safely discovering the fundamentals of money handling at home. You can even offer your child a pre-paid debit card with parental controls and in-app learning, compare those here.
How to teach yourself financial literacy
Financial literacy is about understanding your finances and planning for the future. If you want to improve your financial literacy, we’ve put together some lessons over on our Loqbox Learn hub for you to get started with.
You can also read our blog to familiarise yourself with specific financial products and services that are relevant to your day-to-day life. Here are some resources that you might find helpful when teaching yourself about financial topics to improve your financial literacy:
A great place to start is understanding how gaining financial literacy will benefit you. What’s in it for you? Financial literacy is also tied into the idea of financial wellbeing, which is about relieving the stress and anxiety that money problems can give you.
Read more about financial wellbeing here.
Create a simple budget
It’s not as hard as you might think to build a budget. But once you have one in place, you can find that it’s much easier to understand where your money goes each month!
You can read more about different budgeting rules to find out which one will be right for you, here.
And use Loqbox’s free monthly budgeting PDF to get started.
Learn good habits
How do financially stable people manage their money? Learn from those who are already smashing it! You can read about the good habits of financially stable individuals here.
Once you’ve decided the financial habits you’d like to keep track of, you can use Loqbox’s free habit-tracking document.
Pssst: The full set of these free downloadable PDFs is available for you over at Loqbox Coach which is included for all Loqbox memberships.
Build your credit score
Your credit report is a great place to go to understand your finances. Lenders look at your credit report, as well as other aspects of your applications, to work out whether they're willing to offer you loans, credit cards and mortgages.
When you check your reports, you’ll also be able to see your credit score, which is a numerical value that summarises your credit report. You can read more about what a credit score is here. Checking it will help you to see where you have any problems.
You can check your credit report for free and without impacting it negatively by using one of these services:
ClearScore (uses Equifax data)*
Credit Club (uses Experian data)
Credit Karma (uses TransUnion data)
*If you click on the ClearScore link and decide to sign up we will get a small commission.
If you want to grow your credit score, why not get started with Loqbox? We can help you to build your credit score with Loqbox Spend and develop your financial literacy at the same time with Loqbox Coach. Alternatively, you can grow your credit score while you grow your savings with Loqbox Save!
Pass on the knowledge
How to teach financial literacy to others
Once you’ve mastered how to increase financial literacy yourself, you may know of other friends or family members that would benefit from the same. Of course, you can start by recommending the topics in this blog, but we recognise that getting the conversation going can be tricky.
So in addition to Loqbox Coach, find out some tips and tricks by heading over to our ‘Your Relationship with Money’ hub where you can find out more to get you prepared.