What Is Financial Literacy?


Happy Financial Literacy Month! 

Is that the first time you have ever heard that sentence? Is my household the only household that celebrates this “holiday”? Probably . . . and probably.

National Financial Literacy Month was created to raise public awareness about the importance of financial education in the United States and the serious consequences that may be associated with a lack of understanding of personal finances. Not only does this holiday highlight the importance of financial literacy, but also invites citizens to learn about ways and techniques to become financially smart.

financial literacy: a woman is standing looking confused, with handdrawn question marks hovering around her head.What exactly are we trying to celebrate/highlight/become aware of during National Financial Literacy Month? What does Financial Literacy even mean? To add confusion, there is not one clear, concise definition of financial literacy. If you were to google “financial literacy” you would find many definitions:

I’ll make it simple:

Financial literacy means being able to manage your money. 

Depending on whose definition you use, the qualities of financial literacy include:

  1. Budgeting
  2. Investing
  3. Borrowing/Debt
  4. Taxation
  5. Personal Financial Management
  6. ID Theft prevention
  7. Saving
  8. Protection

With so many different resources available, with different answers and definitions, it’s no wonder many people throw their hands up in the air and say, “Forget it!” when it comes to understanding finances. It’s intimidating!

I’m sure you’re not surprised to hear that the sticking-your-head-in-the-sand strategy is not the best to employ long-term, and can create issues in the future. You don’t have to be an expert in all things finances (though I do recommend you find professionals to work for you that are), but you need to know what’s going on.

According to the Mind over Money March 2023 survey by Capital One and The Decision Lab, 77% of Americans report feeling anxious about their financial situation.

I am going to share with you a couple of basic items that I suggest you have an understanding of in order to reduce anxiety and stress about your money and financial situation.

financial literacy: a woman sits at the table with her laptop open. She's holding a bill and using a calculator.Budgeting

Look at your household’s spending. Is the money coming in greater than the money going out? If the answer is yes, great! If the answer is no, where can reductions take place to at least get you to even? If you’re breaking even, you’re not alone, 78% of Americans live paycheck to paycheck.

I am not a fan of budgets, and most Americans aren’t either. Only 32% of Americans utilize a budget. I don’t like them because I think they just set you up for failure. Creating a budget is easy, maintaining the budget is the hard part. It’s inevitable, as soon as you set a budget, something happens (the car needs to be repaired, or a trip to the emergency room), and the budget is blown. You’re frustrated and again say, “Forget it!”

Instead of a budget, implement a spending strategy. What percentage of your expenses are things you can not live without? Yes, Netflix can be something you can’t live without. What percentage of your expenses are things that are nice to have or do, but you can live without it? What percentage of your money are you saving?

The goal is to have 50% of your income go to things you can’t live without, 20% go to savings, and the rest goes to the stuff that is nice to have but we can live without. 


As I mentioned, the goal is to have 20% of your take-home income saved. Your savings can go to different places: a savings account, a retirement account (Individual Retirement Account), a 529 college savings plan, a brokerage account, or elsewhere.

Every family needs an emergency fund. This is the “break glass in case of emergency” fund. If everything goes to hell in a handbasket, this is the cash you will use to get through it. The rule of thumb is to have three to six months’ worth of expenses in this account. 

If your emergency fund is fully funded, do you want to have more money in the bank or do you want to invest it? If you want to invest it, think about what you would like this money to achieve. Pay for your kid’s college education, go towards your retirement, or something else?

If you would like to save for college, look into a 529 college savings plan. This allows you to invest and the money grows tax-free if used for qualified education expenses.

To save for retirement, does your employer offer a retirement plan such as a 401k, 403b, or 457? If so, you should take advantage of it. If you are already contributing to your employer plan and would like to save more for retirement, this is where an IRA (Individual Retirement Account) or Roth IRA may be helpful. IRAs allow an individual to save for retirement, invest their money and grow tax-deferred, meaning they do not pay taxes until they make a withdrawal. A Roth IRA also defers taxes on the growth of your investment, but the withdrawals are tax-free.

If you would like to invest without a goal in mind, you may consider a brokerage account. E*trade, Robinhood, and Fidelity are all places you can open an account yourself and choose the investments. Brokerage accounts are funded with after-tax dollars, you pay taxes each year on gains and can be withdrawn at any time.

Net Worth

To be financially literate, understanding your net worth is important. Net worth is simply what you own minus what you owe.

For example, take your house . . . If it is worth $500,000 and you owe $300,000 on the mortgage, the $500,000 goes into the “what you own” side of the equation and the $300,000 goes into the “what you owe” side, which then creates a $200,000 net worth. In addition to your house, your car’s value (not what you paid for it) and what you owe, credit card debt, investments, and student loan debt should all be part of your net worth calculation.

The rule of thumb is that when you are 30, your net worth should be 1.5 times your income. When you are 40, your net worth should be double your income. Turning 50, though, kicks your net worth into high gear. By age 50, the rule of thumb says your net worth should be four times your annual salary.

It is a good goal to try to grow your net worth by 5-10% a year. For the majority of years, due to market appreciation and increasing real estate values, this growth can happen quite easily.

Expanding Financial Literacy

Budgeting, saving/investing, and net worth are great starting points on your financial literacy journey. As far as expanding your financial literacy, I would suggest choosing only a few places to obtain financial information. Books are a great place to start. I don’t know about you, but the idea of sitting down and reading a book is a luxury of which I have not partaken in many years. But there are great personal finance books on Audible, two of my favorites are: The Millionaire Next Door and Your Money or Your Life.

If you listen to podcasts, subscribe to a couple of personal finance ones. I like Optimal Finance Daily — they read personal finance articles and blogs and provide tips to optimize listeners’ finances. Give Money CHIC: Women and Retirement a listen — I like it, but I’m also biased (it’s my podcast).

Financial literacy is a skill, and skills develop over time. Taking it step by step is the best way to build confidence and reduce stress in order to create wealth.

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Shari Rash
After a long weekend visiting Mt. Pleasant in January 2022, Shari Rash called a realtor and had their Vienna, VA house listed for sale within weeks. By June 2022, Shari, her husband Joe, their au pair, and four kids made Mt. Pleasant home. And they haven’t looked back! Since then they added a Goldendoodle puppy, Flash Rash, to the madness. Originally from Southern NJ, she hated that Summer only lasted three months. Shari is the founder of Greenway Wealth Advisory, a virtual financial planning firm dedicated to empowering women when it comes to their finances.