What is Financial Literacy?

Being 'financially literate' means knowing how to manage your money, but what does it mean when we say how to manage your money? This means learning how to pay your bills, borrow and save money responsibly, and how to invest and plan for retirement.

It is a life skill that one must grasp for good financial wellbeing. Putting time into your economic development will improve your saving and investing decisions and establish a good habit—you can build a long-lasting nest egg.

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What is Financial Literacy?

The skill and ability to understand one’s money and effectively using it is called 'Financial Literacy'. It’s a skill that one learns on their own and can benefit you for the rest of your life, with uncountable bills each month and daily cash flow on little expenses and continuously thinking about saving & investing is daunting.

Financial literacy teaches an individual how to make major financial decisions. With increased financial discipline and capability, significant lifestyle changes like saving and investing regularly, managing debts effectively, and efficiently fulfilling life goals. Additionally, financial literacy will ensure one’s financial wellbeing and also protect individuals from financial frauds.

Financial literacy provides in-depth knowledge of financial education and various indispensable strategies for economic growth & success.

To understand the importance of Financial Literacy better, let’s know about four essential components of it.


The first building block of financial literacy is the ability to plan a budget. Budgeting is one of the most important financial habits you can teach in your life. While creating an account is essential to help you plan how much money to save, spend, invest and give, it is equally important to track those expenses in an organised manner to make swift progress in your financial journey. The thumb rule for budgeting is that income has to be greater than the costs, and the difference between the two (income and expenses) is what helps in stashing up as savings.

Know all about Budgeting here: How To Start Creating a Budget From Scratch


An essential component that comes from a planned budget. One can build wealth in the long term through proper financial planning. Keeping a tab on one’s spending habits will help in saving money. Developing consistent savings habits allows you to leverage time, age, current resources, compounding interest, investments, and tax-advantaged savings.

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Investing is a way to set aside money while you are busy with life and have that money work for you to reap the rewards of your labour in the future entirely. Investing is a means to a happier ending. Some of the widely used investment options are equities, debt instruments, mutual funds, real estate, and gold.


Debt refers to money that is borrowed by someone else. Mostly, debt is seen as a negative aspect. Which makes understanding debt very important. However, not everyone can buy a house or car or pay tuition fees with cash. In such cases, borrowing or taking a loan is the only way out. But the most important thing is to differentiate between good debt and bad debt. So always aim to avoid bad debt as much as possible.

“Good” debt is defined as money owed for things that can help build wealth or increase income over time, such as student loans, mortgages or a business loan. “Bad” debt are things like credit cards or other consumer debt that don't do much to improve your financial outcome.

Therefore, to differentiate between necessary and unnecessary expenses will help an individual avoid drowning in heavy debts.

So by being financially literate, you can take the first step towards Financial Wellness and we at Wizely are committed to help you get started!

Follow our 'Financial Literacy' blog series:
5 Simple Ways You Can Become Financially Literate
Learn & Grow Your Financial Knowledge with Wizely

Sakshi Mehrotra

Sakshi Mehrotra