What is Financial Literacy?

You’ve heard of the term. Now it’s time to know what it means.

Financial Literacy. It’s the basic concept of money matters and money management; the foundational building block of your personal finance. A person who has financial literacy is someone who understands specific financial skills and knowledge. These allow him or her to make informed decisions about his or her financial resources, leading to an overall better sense of financial well-being. 

Now you may think: “That doesn’t sound very important. I can still manage my money without knowing any skills.” That may be true, but not being financially literate can have serious consequences. According to the S&P Global FinLit Survey, consumers who fail to understand the concept of compound interest are found to spend more on transaction fees, run up bigger debts, and incur higher interest rates on loans. They also end up borrowing more and saving less money.  

At UOB TMRW, we aim to empower our customers to make better financial decisions.

Did you know that Southeast Asia has many countries that have lower-than-average financial literacy rates? This includes countries such as Malaysia, Indonesia, and Thailand. This also means that most of us don’t really know what we are doing with our money.

This is where financial literacy comes in. Learning about financial literacy can help individuals grow their wealth and manage their money better—opening doors to a more financially stable life for themselves and their loved ones. Financial literacy also teaches us how to avoid bad financial situations where we feel unprepared and helpless when we meet a financial emergency.

Apart from improving your own financial health, having financial literacy can also empower you to teach your kids and future generations to better manage their money and help them live more fulfilling lives.

5 Pillars of Financial Literacy

Financial literacy can be divided into 5 key components: Earn, Spend, Save and Invest, Borrow, and Protect.  

Now that you have a rough idea of financial literacy, check out these 10 common financial terms that you may encounter when you first start on your financial management journey.

Credit and Citations

S&P Global FinLit Survey (2014)

Lusardi, Annamaria, and Carlo de Bassa Scheresberg, (2013). “Financial Literacy and High-Cost Borrowing in the United States,” NBER Working Paper 18969.

Lusardi, Annamaria, and Peter Tufano, (2015). “Debt Literacy, Financial Experiences, and Over Indebtedness,” Journal of Pension Economics and Finance, Vol. 14, special issue 4, pp. 332-328, October. 

Stango, Victor, and Jonathan Zinman, (2009). “Exponential Growth Bias and Household Finance,” The Journal of Finance, Vol. 64(6), pp. 2807-2849, December.