What is a key component of financial literacy?

Understanding and effectively using financial skills is a key component of financial literacy because financial literacy encompasses more than just knowledge; it involves the practical application of that knowledge in making informed financial decisions. This includes budgeting, saving, investing, understanding credit, and managing debt.

Financial literacy empowers individuals to navigate their financial environments competently, which helps them achieve personal financial goals and avoid pitfalls such as overspending or failing to save adequately for the future. While knowledge about taxes, financial risks, or economic theory can be valuable, the essence of financial literacy lies in the ability to apply various financial skills effectively to one's own life. This practical application enables individuals to adapt their strategies based on changing financial landscapes and personal circumstances.