When you think of financial literacy, you probably think of personal finances and how to make ends meet in tight times. However, financial literacy goes beyond just handling money — it’s the broader skills and knowledge you need to thrive in life. In other words, financial literacy is all about understanding your current finances, the importance of saving money, how to be smarter with money, creating long-term plans and goals for both your short- and long-term financial futures, etc.Financial literacy is essential for everyone, but especially important for seniors who have a greater risk of encountering financial challenges later in life. According to a report from the U.S. Government Accountability Office (GAO), almost half of older Americans struggle with managing their finances, and about 27% of them end up resorting to credit cards for emergency expenses because they don’t have enough cash savings on hand to cover their needs.

What is financial literacy?

Financial literacy is the ability to identify, understand and manage your money effectively. Financial literacy is not just knowing how to balance your checkbook — it’s about having the knowledge and confidence to make money-related decisions throughout your life. Financial literacy also encompasses things like budgeting, saving for emergencies or retirement and knowing the difference between the various types of insurance coverage.

A good way to measure your personal financial literacy is to take a self-assessment quiz that will let you know where your strengths and weaknesses are. Most financial literacy quizzes are not diagnostic tools, so don’t be overly concerned if you get a few wrong answers. In fact, it’s better to know what you don’t know than to pretend you do.

Saving and Insuring

The first step to financial stability is building up an emergency savings fund. There are many different ways to save for an emergency fund. The most common recommendations are to save between three and six months’ worth of expenses. This is the kind of cash you should have on hand in case of a medical emergency, car repairs, etc. If you don’t have an emergency fund, you’re one step away from getting into debt for things like car repairs, doctor’s bills and other expenses that come up unexpectedly.

While an emergency fund is a good place to start, it’s not the only kind of savings you should have. You should also aim to save for short- and long-term goals. Whether it’s paying for your children’s education or your own retirement, it’s important to have some money set aside for these types of expenses.

Finally, you should also consider getting insurance to protect your major expenses. There are many types of insurance you may want to consider depending on your situation. A good rule of thumb is to get a policy for every type of expense you can imagine, even if you think you can’t afford it. Anything that may take a large amount of cash out of your pocket is a good reason to get some insurance coverage.

Develop Long-Term Plans

As you get older, your needs and goals will change. While you might have focused on saving for your children’s education, you might want to start saving for your own retirement at a later point. Financial literacy is all about long-term planning and making sure your money is best spent. A good way to do that is to create a financial plan that includes all of your current financial situations, future goals and how much you need to save to get there.

Financial literacy is something that we can all benefit from. While some people may have a natural talent for handling money, others might need to learn how to better manage their finances. Regardless of where you are with your money right now, there are plenty of ways you can improve your financial situation over time. With a bit of effort, you can greatly improve your financial literacy and be well on your way to achieving a financially secure future.