Financial Literacy

Financial literacy is the possession of the skills, knowledge, behavior and attitude that let a person make informed decisions about money, a term often used interchangeably with financial education and financial knowledge. Financially unsophisticated individuals struggle to plan for their future because of poor financial knowledge, while financially sophisticated individuals are better at financial calculations, such as understanding compound interest, which helps them engage in lower-cost borrowing; unsophisticated individuals typically pay higher costs on their debt. Raising financial literacy is now a focus of state-run programs in countries including Australia, Canada, Japan, the United Kingdom and the United States, on the premise that people with appropriate financial literacy training make better financial decisions than those without it. The Organisation for Economic Co-operation and Development began an inter-governmental project in 2003 to develop common financial literacy principles and later launched the International Gateway for Financial Education as a worldwide clearinghouse, while the United Kingdom uses the related term financial capability and the United States established its own Financial Literacy and Education Commission in 2003.