Banks and other institutions are inundating consumers with credit opportunities—the ability to apply for credit cards or use credit checks to pay other credit balances—and without the proper knowledge or checks and balances, it is easy to get into financial trouble. In past generations, cash was used for virtually every purchase. Today, cash is rarely used. The way we shop has changed as well. Online shopping has become the top choice for many younger shoppers, creating ample opportunities to use and overextend credit, an all too easy way to accumulate debt, fast. Many of these consumers have very little understanding of finances, how credit works and the potential impact on their financial well-being for many, many years. In fact, the lack of financial understanding has been signalled as one of the main reasons behind savings and investing problems faced by many Americans.
Financial literacy is the confluence of financial, credit and debt management and the knowledge that is necessary to make financially responsible decisions—decisions that are integral to our everyday lives. Financial literacy includes understanding how a checking account works, what using a credit card really means, and how to avoid debt. In sum, financial literacy impacts the daily decisions an average family makes when trying to balance a budget, buy a home, fund their children’s education and ensure an income at retirement. (For more, see series: Teaching Financial Literacy.)