Financial Literacy: What is it and why is it important?

You know the age-old phrase, “Knowledge is power?” If you don’t, you do now! Basically, the more you know, the better placed you are to make an informed and responsible decision on something. And the same applies to your finances. 

Read on as we break down financial literacy and how it applies to our day-to-day lives. Plus some of our own Beforepay team members share tips and insights they’ve picked up from their favourite books and their own financial journeys.

Understanding financial literacy

Financial literacy, in essence, is being equipped with the skills and knowledge about financial concepts so you feel comfortable and confident to manage your finances. 

Understanding things like how your money moves, budgeting and saving, setting financial goals, managing debt and credit cards, and emergency funds can help you be in control of your finances in the long-run.

Financial literacy v. financial wellbeing

Where financial literacy is what you know about your finances, financial wellbeing is how you feel about your finances. Being able to manage your finances well can impact your financial wellbeing, and your overall health and wellbeing. 

In 2021, ANZ’s Financial Wellbeing Survey showed that having a strong financial knowledge can positively impact your confidence and sense of control when it comes to your finances, which can lead to improving how you spend and save. This is important because the less you feel in control of your finances, the more time you are likely to spend thinking about it, and this is what can lead to stress.

In Australia, a study by The University of Western Australia shows that just over half of all adults consider themselves to be financially literate. A 2020 AMP Financial Wellness Report further shows that around 1.8 million Australian workers experience moderate to severe levels of financial stress.

How do I start?

Whatever stage you’re at in your financial journey, whether you’re just starting out or want to improve what you’re currently doing, don’t feel overwhelmed. We’re here to make it easy and doable. 

Your next (or first!) step doesn’t have to be big. Sometimes setting ourselves a huge goal makes us less likely to actually do anything about it. It’s about the small steps you take to get there.

Things to think about

To help you on your way to feeling confident and in control of your finances, we’ve put together some things you can start to think about in your day-to-day now so you can work towards peace of mind later.

1. Understand how your money moves 
Put in the time upfront to look at how your money moves and save you time and money later. Look at how much your income is, your bills and expenses between paydays, and how much wiggle room you can give yourself so you can spend without worrying.

You can track your income and expenses with our Insights dashboard in the Beforepay app, or read more tips for budgeting and allocating your pay here. 

2. Find a budgeting app that works for you
You can find any budgeting app you want, but the difference is in actually using it. We make budgeting in the Beforepay app as simple as possible so you can put it straight to use!

3. Avoid or minimise debt where possible
Ray Ranola is a Senior Front-End Engineer at Beforepay who found practical advice on financial security in Dave Ramsey's The Total Money Makeover.

"A couple of the key takeaways for me from this book were to avoid overextending yourself, and avoiding or minimising debt as much as possible. In practical terms, this may mean driving a more reasonable car or avoiding credit cards."

4. Keep an emergency fund
This doesn't mean setting aside $1000 all at once. This can be an account, piggy bank or old jar - whatever works for you - that you put a little into every day payday so you have a bucket of your own funds set aside for a rainy day, rather than turning to a credit card.

You could also consider using Beforepay. In the event of an emergency, you can instantly Cash Out a portion of your pay in advance for a minimal fee. That way you can rest easy getting through life's unexpected moments with your own funds, on your own terms.

5. Make your money work for you
If you are further along in your financial journey and are ready to start thinking about investing, Associate Product Manager at Beforepay, Simon Berry, says he picked up smart and simple investing concepts from Tony Robbins' Unshakeable: Your Financial Freedom Playbook. 

"For someone who is just starting out, this is a great guide about how to achieve returns with low risks. I started making a conscious effort to regularly put aside money to invest and stopped monitoring it every day."

Key takeaways

Taking charge of your finances now can help unlock your financial flex and freedom in the future. So you can spend less time worrying and more time enjoying the things you work for.

Here are a couple of reminders to help you start taking charge of your finances today. 

• The more you know about how your money moves, the more confident and in control you'll feel about how you can make the most of it.

• Small changes in your daily habits, like checking your spendings insights or tracking your budget, can lead to big changes down the track, so it's better to just start.

• Look for ways to plan ahead, whether it's through budgeting or an emergency fund, so you're prepared for whatever life throws your way.

Disclaimer: Beforepay Group Ltd, ABN: 63 633 925 505. Beforepay allows eligible customers to access their pay and provides budgeting tools. Beforepay does not provide financial products, financial advice or credit products. The views provided in this article include factual information and the personal opinions of relevant Beforepay staff and do not constitute financial advice. Beforepay and its related bodies corporate make no representation or warranty, express or implied, as to the accuracy, completeness, timeliness or reliability of the contents of this blog post and do not accept any liability for any loss whatsoever arising from the use of this information. Please read our Terms of Service carefully before deciding whether to use any of our services.