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However, it is one knowledge that most people assume they have even when they have not taken out time to intentionally acquire it. So, how do you know if you’re truly financially literate? To help you assess your financial literacy, here are ten questions you should ask yourself.
1. Do I Understand the Basics of Budgeting and Do I Have One?
Budgeting is the foundation of financial literacy. It involves planning how to spend your income to cover your needs, wants, and savings. Ask yourself if you understand how budgeting works and if you regularly create a budget and stick to it.2. Do I Understand the Difference Between Assets and Liabilities?
Knowing the difference between assets and liabilities is key to building wealth. A simple way to understand these two important aspects of finances is – assets put money in your pocket, while liabilities take money out. If you can clearly distinguish between the two and focus on acquiring assets, you’re on the right path to financial literacy.3. Do I Have an Emergency Fund?
An emergency fund is money set aside for unexpected expenses, like medical emergencies or job loss. Having an emergency fund is a key aspect of financial security and literacy. It is advisable to have at least three to six months’ worth of living expenses saved in an easily accessible account.4. Do I Understand the Difference Between Wants and Needs?
One of the core principles of financial literacy is being able to differentiate between wants and needs. Understanding this difference helps in making informed decisions that align with your financial goals, avoiding unnecessary debt, and living within your means.5. Do I Know How to Save and Invest?
Saving is the first step to financial security, but investing is what helps you grow your wealth over time. Are you familiar with different savings accounts, investment options such as stocks, bonds, and mutual funds, and the risks involved? Being financially literate means knowing where and how to save or invest your money to achieve your financial goals.Sign up for the Connect Nigeria daily newsletter
6. Can I Read and Understand Financial Statements?
Being able to read and understand financial statements like account statements, balance sheets, and cash flow statements is important for understanding your financial health and that of your business. If you can read and interpret these documents, you’re well-equipped to make informed financial decisions.7. Do I Understand How Interest Rates Work?
Interest rates can work for or against you. They determine how much you earn on your savings or how much you pay on loans if you take out any. Understanding how they work, including compound interest, can help you make smarter financial decisions such as avoiding high-interest loans or maximizing the interest on your savings.8. Do I Know How to Protect Myself from Fraud and Scams?
Financial literacy isn’t just knowing how to earn and save but it also involves knowing how to protect yourself from fraud and scams. With the advancements in digital technologies, scams and frauds are now very common these days. How aware are you of common financial scams? Can you tell me when you see one? Do you know how to protect your personal information and avoid falling victim to these scams?9. Do I Have a Retirement Plan?
Planning for retirement is a critical aspect of financial literacy yet is often overlooked. Ask yourself if you’re actively contributing to a retirement plan and if you understand the options available to you. Don’t make your children and family your retirement plan.10. Do I Have A System of Regularly Reviewing My Financial Plan?
Financial literacy is not a one-time achievement; it’s an ongoing process. Being proactive about your financial health is very important, especially in the face of life changes, such as a new job, marriage, or a new child.Register to attend the CN Business Mixer
Concluding Thoughts
Being financially literate is more than just understanding money and how it works; it’s about making informed decisions that lead to financial stability and growth. By asking yourself these ten questions, you can assess your current level of financial literacy and identify areas where you may need to improve.Got a suggestion? Contact us: editor@connectnigeria.com