Financial Literacy 101: Empowering Consumers

We are all consumers in one way or another. One of the most basic skills you are expected to acquire in life is the ability to read and write. Being literate helps you navigate this world better. That aspect of literacy spans to several other areas and one of them is finances. You must become financially literate. Financial literacy is the ability to grasp and proactively use principles of financial components in navigating your personal finances. 

Financial components here refer to aspects such as budgeting, spending, borrowing, investing, taxation, and so on. Given the inevitability of consuming something daily you need to understand how money works. You need to be empowered as a consumer. That is why in this discussion we shall be delving into important information you need to know to build or bolster your financial literacy as a consumer. 

Understanding The 5 Principles Of Financial Literacy

The US Financial Literacy and Education Commission (US FLEC) cites 5 principles that constitute financial literacy. These are Earn, Spend, Save & Invest, Borrow, and Protect. Thus in your continuous quest to understand money better, you need to zone in on those 5 areas. 

Set And Periodically Reassess Your Financial Goals

As a consumer you must never make a habit of making spontaneous purchases. The first thing you must give attention to is goal setting. Devise a personal financial plan; essentially a budget. What are your financial goals in the short term (monthly) or in the long term (quarterly, bi-annually, annually, etc.)? You must lay that out before doing any spending. Be honest with yourself and consider the income you are making monthly. 

Consider the expenses. Consider saving some of it for aspects such as emergencies. Take everything into account. When you have a personal financial plan that is well-crafted, it will regulate how you interact with anyone trying to sell something to you. Your financial goals should be your guiding ordinances. Then, every time there is a shift in your circumstances, sit down and reassess those goals. 

Track Your Spending

You can never stay within the confines of your budget or financial goals if you do not track your spending. Tracking your spending helps you ensure you are only doing that which you factored for already. One way you can use to track your spending is to keep all financial documents. This can be receipts, invoices, contracts, agreements, and so on. Avoid having to try and recall things from memory later because you often end up misleading yourself. 

Build a well-structured and secure repository of materials that constitute all your expenditure. It is also advisable to use mobile apps or software applications in tracking your spending. There are lots of them out there for you to choose from. You must track your spending daily in order to stay on top of it. 

Get Rid Of And Minimize Debt

It is important to appreciate that debt can be debilitating. If you do not address debt it can literally render your budget or financial goals ceremonial. In order to have the flexibility and agility to manage your finances well, get rid of debt first. The issue here is two-pronged. One, get rid of any existing debt you may have. At the very least, have a plan on how to pay it off and implement it. 

Two, ensure to avoid debt by all means moving forward. Understand that most businesses profit the more you buy things on credit. Understand also that businesses will never stop pitching to you to buy their goods or services. The credit system is convenient but do not fall prey to the temptation to always be in debt. Be aggressive in eliminating debt or avoiding it. 

Actively Seek To Reduce Spending

As a consumer, always bear this in mind – you always have ways to reduce your spending. If you take an honest look at your spending, you will notice some unnecessary expenditure. For instance, you can cut significant spending but minimizing eating out. You can wash your own car. You can commute to work using public transport. You can get stuff in bulk which tends to be cheaper. These are just some random examples but you can see that the list can go on and on. A lot of what you are being lured into buying or spending on is not necessary at all. 

Live Within Your Means: Spend Only What You Have

Businesses tend to capitalize on consumers’ lack of financial planning e.g. budgeting. They also capitalize on most consumers’ affinity for impulse buying. Essentially, that fear of missing out (FOMO) craze. Consumers who are ill-equipped in these regards will definitely end up living beyond their means. No matter what comes or is thrown your way, always spend only what you have. Do not spend money you do not have. 

This even applies to spending anticipated income; desist from that. Think of it from the perspective of a hunter. A hunter eats what they kill. They can never get to eat or enjoy what they have not caught or killed. Apply this same principle to what you get to consume. Never mind there are lots of alluring things on offer. Spend only what you have; that should be your mantra!

The things we have discussed should be embedded in your core consciousness. You should also actively seek to know more to stay abreast with the fast-paced world of business. Often time consumers are usually susceptible to predatory businesses which tend to capitalize on consumers’ financial illiteracy. By being financially literate you stand a better chance of making the best purchase decisions. Remember personal finances are personal so do not be swayed by anyone or compete with anyone.