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Financial Wellness vs Financial Literacy

By: Kenyon Sutton, Financial Wellness Manager

Posted on 4/1/2023 8:08:13 AM

Financial literacy

Financial literacy and financial wellness are interconnected and interdependent concepts, but financial literacy typically comes first. Financial literacy is the foundation for achieving financial wellness, as it involves having the knowledge and skills necessary to make informed decisions about managing personal finances.

Since both are equally important, let’s break them down separately, so you can see how they are different, and how they work together. 

Financial Literacy

Financial literacy involves understanding basic financial concepts such as budgeting, saving, investing, debt management, and risk management. It is the ability to read and understand financial statements and to use financial tools such as credit cards, loans, and insurance wisely.

Financial literacy is important for several reasons. First and foremost, it helps individuals make informed decisions about their money. With a solid understanding of financial concepts, individuals are better equipped to navigate financial decisions such as investing, saving for retirement, and managing debt. Additionally, financial literacy can help individuals avoid scams and fraudulent schemes that can lead to financial ruin.

Financial literacy is important for long-term financial stability. When individuals understand how to manage their money effectively, they are more likely to have stable finances and avoid financial crises. This can lead to a higher quality of life, less stress, and greater financial security.

It is also important for the economy as a whole. When individuals are financially literate, they are more likely to make sound financial decisions, which can have positive effects on the economy. For example, when individuals save and invest their money, they are contributing to the growth of the economy. Similarly, when individuals avoid excessive debt, they are less likely to default on loans, which can have negative effects on the economy.

It can seem overwhelming, but it's important to remember that it's a skill that can be learned and developed over time by anyone! 

So, what are some key financial concepts that individuals should understand to become financially literate? Let’s take a look:

  • Budgeting: Creating a budget is an important step in managing your money effectively. A budget helps you track your income and expenses and can help you identify areas where you can cut back on spending.
  • Credit: Understanding credit is essential for managing debt and building good credit. This includes understanding how credit scores are calculated, how to use credit cards responsibly, and how to manage debt.
  • Saving and investing: Knowing how to save and invest your money can help you build wealth and achieve long-term financial goals such as retirement. This includes understanding different types of investment vehicles such as stocks, bonds, and mutual funds.
  • Financial planning: Developing a financial plan can help you set goals and create a roadmap for achieving them. This includes identifying your financial goals, creating a budget, and developing a plan for saving and investing your money.

Don’t get overwhelmed! There are a lot of resources out there to help you develop your financial literacy.

  • Read financial books and articles: There are many financial books and articles available that can help you gain knowledge about personal finance. 
  • Take online courses: There are many free online courses available that can help you learn about personal finance, investing, and budgeting, like our moveUP Financial Wellness courses!
  • Attend financial workshops and seminars: Many financial institutions and organizations offer financial workshops and seminars on a variety of topics. 
  • Consult with a financial advisor: A financial advisor can help you understand your financial situation and develop a plan to achieve your financial goals. 
  • Use financial apps and tools: There are many financial apps and tools available that can help you track your spending, create a budget, and monitor your investments. 

Remember, developing financial literacy is an ongoing process. It's important to continue learning and seeking advice from professionals to stay informed and make informed financial decisions.

Once individuals have developed financial literacy, they can begin to make decisions that promote financial wellness. 

Financial Wellness

Financial wellness refers to the state in which an individual has complete control of their financial life. Basically, it means you got your money game under control - you can pay your bills, save some cash, handle debt, and have some stability with your finances. It’s no surprise that it’s key to your overall well-being.

Here are some reasons why financial wellness should be top of mind:

  • It reduces stress and anxiety. If you are having money problems, it’s obvious you are going to be stressed. This can affect a lot of areas in your life, including your relationships, career, and even your health. Being financially fit can help you avoid financial stress, allowing you to focus on what matters. Plus, the more you practice managing your money, the better you will become at developing those great financial habits!
  • Being financially stable opens up doors for more opportunities. You can afford to do things that you couldn't do before, like traveling or investing. Maybe take up a new hobby or join that yoga class you’ve been wanting to try. It's all about making a plan and going for it.
  • Financial wellness helps you become more prepared for emergencies. Emergencies can happen at any time, and being financially stable ensures that you have a rainy-day fund to fall back on. But if you've got a rainy-day fund, you can bounce back faster.
  • You have to have money to make money. When you’ve really gotten the hang of financial planning, you can take the next step to wealth creation. This is your savings, investments, and other opportunities. This is your future planning to make sure you are set in the long run.

You now know why, but do you know how? Here are a few steps to help on your journey to becoming financially secure:

  • Set financial goals: Define your short-term and long-term financial goals and create a plan to achieve them.
  • Live within your means: Spend less than you earn and avoid unnecessary expenses.
  • Save regularly: Save a portion of your income regularly, whatever you can afford.
  • Expand your income streams: Explore different ways to increase your income, such as taking on a part-time job or freelance work.
  • Manage debt: Keep your debts under control and pay them off as soon as possible.
  • Protect your assets: Get insurance coverage for your home, car, health, and life to protect your assets.
  • Retirement plan: Start planning for retirement early and invest in a retirement account like a 401(k) or IRA.
  • Seek professional advice: Consult with a financial advisor or planner for guidance and advice on how to manage your finances.

In the end, financial wellness and literacy should be a part of everyone's life. By making a plan and taking control of your finances, you can have less stress, be more prepared, and have more opportunities to live your best life. 

Need some help getting started? Make an appointment with one of our Financial Wellness Advisors today!

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