What is Financial Literacy?

Financial literacy is the ability to understand and apply financial concepts to everyday decisions. The CFPB defines it as the capacity to manage day-to-day finances, prepare for financial shocks, set and work toward financial goals, and exercise choice and control in the financial marketplace. The Financial Literacy and Education Commission (FLEC), established by the Fair and Accurate Credit Transactions Act of 2003 and coordinated by the Treasury Department, published the National Strategy for Financial Literacy, which identifies five core competency areas: earning, spending, saving and investing, borrowing, and protecting.

The Department of Education includes financial literacy in its framework for 21st-century skills, and multiple states now require a standalone personal finance course for high school graduation. Research published by the CFPB’s Office of Research indicates that financial well-being—the outcome of financial literacy applied consistently over time—correlates more strongly with day-to-day money management behaviors than with raw income levels.

Financial literacy is not a one-time certification; it is a set of habits developed and maintained over a lifetime. The FDIC’s Money Smart program, the CFPB’s Your Money Your Goals toolkit, and Treasury’s MyMoney.gov portal are three federal resources designed to help consumers build these skills at every life stage.