Financial literacy

Financial literacy is the possession of skills, knowledge, and behaviors that allow an individual to make informed decisions regarding money. Financial literacy, financial education and financial knowledge are used interchangeably.^[1] Financially unsophisticated individuals cannot plan financially because of their poor financial knowledge. Financially sophisticated individuals are good at financial calculations; for example they understand compound interest, which helps them to engage in low-credit borrowing. Most of the time, unsophisticated individuals pay high costs for their debt borrowing.^[2]

Raising interest in personal finance is now a focus of state-run programs in Australia, Canada, Japan, the United Kingdom, and the United States.^[3][4] Understanding basic financial concepts allows people to know how to navigate the financial system. People with appropriate financial literacy training make better financial decisions and manage money than those without such training.^[5]

The Organization for Economic Co-operation and Development (OECD) started an inter-governmental project in 2003 to provide ways to improve financial education and literacy standards through the development of common financial literacy principles. In March 2008, the OECD launched the International Gateway for Financial Education, which aims to serve as a clearinghouse for financial education programs, information, and research worldwide.^[6] In the UK, the alternative term "financial capability" is used by the state and its agencies: the Financial Services Authority (FSA) in the UK started a national strategy on financial capability in 2003. The US government established its Financial Literacy and Education Commission in 2003.^[7]