Financial literacy is a combination of financial knowledge, skills, attitudes and behaviours necessary to make sound financial decisions, based on personal circumstances, to improve financial well-being. Financial literacy is an essential everyday life skill for men and women, adults and children, and people across the socio-economic spectrum (Australian Securities and Investment Commission, ASIC, 2014-2017).
The National Financial Literacy Strategy 2014-2017 Five Step Action Plan focuses on building the financial capacity of individuals, families and communities, with a focus on educating the next generation with the basic knowledge, skills and behaviours needed to make good financial decisions as a skillset to build on across the lifespan.
Like most life skills, understanding the nuances and facts of financial management is a learned skill, which also suggests that with appropriate guidance, knowledge and expertise, even poor financial skills can be unlearned. Money habits and the meaning of money are often learned from families and social networks. If unhelpful financial behaviours have been adopted, and financial strain exists, seeking help from financial experts may be a useful first step to shifting one’s damaging relationship with money.
Basic financial literacy means every family needs a financial plan, with clear budgets. Transparent and honest discussions are required to address beliefs and behaviours about spending, saving, investing, debt, giving, investing, hidden or secret spending and how household financial responsibilities will be shared between family members.
Teaching young people how to manage pocket money or wages earned while working in a part-time job is an opportune teachable moment to create healthy, independent, long-term patterns with money. The Family Peace Foundation recommend the importance of teaching young people how to break down even small amounts earned into four parts – saving, giving, investing, and spending.
Saving a proportion of money teaches the importance of building funds for expected or unexpected needs in the short or long term. Teaching children to have some slack in the financial system potentially reduces the debt mentality that many people turn to when they are hit with unexpected costs.
Giving creates a sense of meaning, compassion and purpose, and not only benefits the recipient but also the donor. Often the people with the least give even small amounts to others, and fill up their own emotional cups in the process.
Investing may seem out of reach for many with no excess funds, however even small amounts of money can earn more money when wisely invested.
Understanding spending patterns and finding ways to be more aware of where money is being spent is an important skill to learn and requires transparent budgeting skills. When financial progress is made, celebrating successes such as paying off debts, spending less, or giving to others is imperative to cement new and constructive money management skills and techniques.
Further information can be found on www.financialliteracy.gov.au or www.humanservices.gov.au/customer/services/financial-information-service