What is financial literacy?

Financial literacy is fundamentally about the ability to manage personal finance matters effectively. This encompasses a range of skills that allow individuals to understand and apply financial concepts such as budgeting, investing, saving, and financial planning. A financially literate person is equipped to make informed decisions regarding their financial resources, which is critical for achieving both short-term and long-term financial goals.

Understanding personal finance is essential in today's complex financial landscape, where individuals are expected to navigate various financial products, understand credit scores, and make sound investment choices. This capability also involves being able to evaluate the implications of financial decisions on one’s overall well-being, making it a crucial component of personal success.

By focusing on personal financial management, individuals can better prepare for emergencies, plan for retirement, and ultimately gain a greater sense of financial security and independence. Thus, recognizing that financial literacy is primarily centered on managing personal finances provides the most accurate definition of the term.