What is meant by "financial literacy"?

Financial literacy refers to the capability to understand and use financial skills effectively. This broad definition encompasses a range of competencies necessary for making informed financial decisions, managing personal finances, and understanding how different financial products and services work. Being financially literate means that an individual can analyze financial situations, evaluate risks and rewards, and develop strategies to reach financial goals, covering aspects such as budgeting, saving, investing, and understanding credit and debt.

While producing financial reports, knowledge of tax laws, and the skill of budgeting and saving are all important components or aspects of financial literacy, they do not fully encompass the comprehensive skill set that financial literacy entails. The ability to understand and utilize various financial skills is essential for navigating everyday financial challenges and long-term planning.