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What are the Indicators of Financial Literacy?

April 21, 2023

Table of Contents

    Table of Contents

      Check out this article to know what factors might be influencing your financial literacy journey.

      Financial literacy is the hottest topic today.

      From finance influencers trying to simplify financial concepts for the general public to the hustle craze emphasising financial independence to the market conditions forcing us to look out for more vibrant sources of income, everyone is at least trying to become financially literate. 

      Have you ever wondered what exactly signifies financial literacy?

      Someone might be wealthy, but is it because he/she inherited the wealth or built it from scratch?

      If inherited, how are they managing inheritance money?

      If they built it on their own, what was their strategy?

      All these questions, when asked, will give you a sneak peek into how financially literate a person is.

      To test your own knowledge, you can even ask yourself questions regarding your personal financial planning and how you manage your money. To get more specific answers and to know what factors determine financial literacy, keep reading further. 

      Here are some indicators of financial literacy

      Financial awareness, culture & behavior

      When testing for financial literacy, there’s no way you can skip the concepts of general financial awareness, culture, and behavior.

      Financial awareness signifies how much you understand concepts like budget, money management, savings, investments, etc.

      It also refers to being aware of different methods and strategies of financial planning.

      Whether you know what your financial portfolio is and how important the concepts of emergency funds and insurance are, it is also a determinant of financial literacy. 

      Financial culture would represent your knowledge about money and various financial products and instruments that are used to grow it.

      How efficiently you are able to grasp these concepts and apply them to your financial choices is important, too.

      In all, your financial culture affects your informed decision-making skills and finance management.

      All your finance skills and knowledge, when put into real action, create your own financial culture.

      Your financial behavior defines your mindset about money and finances.

      Whether you feel easy about managing your money, investing it, learning about it , etc., all are affected by your financial behavior.

      If you are constantly worrying about losing money, you then have negative financial behavior.

      How well you are able to manage risks involved in finance is also a determinant of your personal financial behavior.

      Attitude towards money and finance - setting the goals

      How do you see your money? Is it just a medium for you to buy things, or do you save it because you have goals? Do your FOMO take over often, or do you practice some healthy financial habits?

      Your attitude towards your money and finances is a straightforward representation of your financial literacy.

      You may prefer traditional investments like FDs, or you may be trying out SIPs - everything stands incomplete without a well-defined goal and objective.

      So, to improve your financial literacy, make sure that you understand the stretch of your every penny and have plans for its further growth.

      Management of financial risks 

      Well, no one likes losing money, but how well you handle that situation plays a major role in deciding what turn your finances take from there.

      If you are a risk lover, you won’t mind it (since it was already expected) and may just alter your approach a little.

      Such instances won’t discourage you from further investing.

      However, what if you are a hardcore risk hater?

      Being risk averse will make the situation of losing money more painful.

      You may withdraw all your investments or just promise not to invest again.

      This negative approach can make your financial growth stagnant.

      There are chances you will then switch to much safer alternatives like FDs but at the cost of high returns that volatile investments provide.

      Which of the above-mentioned approaches do you feel yourself following?

      Don’t care about the results for now, and just analyse how you approach the concept of risk management.

      This would do nothing but help you figure out what type of investments will keep your mind at peace.

      Use of e-finance 

      E-finance is a relatively new concept - now in trend mainly due to the recent pandemic.

      Almost all the banks now have their own online apps where customers can carry out any function with few taps and swipes.

      The UPI system has further transformed the finance ecosystem.

      Thanks to the various applications out there, we now don’t need to carry cash. Almost every shop has its own online payments system in place.

      Now, to be financially literate, it is important to know not just about the basic concepts but also about learning new innovations.

      E-finance is one of them. Be it saving, budgeting, or investing, everything can be done online.

      For instance, you can start investing in digital gold completely online with no KYC through the Jar app.


      Financial literacy is a must-have skill. Be it achieving your financial goals or maintaining your basic lifestyle without compromising on your wants, financial literacy can help you have it all. In case you are more curious about the concept and want to know more, you can read some good personal financial books.

      You can also follow these financial influencers to expand your financial knowledge beyond.