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Financial Literacy is a Wheel Not a Spoke


A single bicycle wheel without a tire sits atop a stool
Image: Bicycle Wheel by spDuchamp; under CC BY 2.0

Everyone does, or eventually will, use money.  However, about 67% of the world is financially illiterate and roughly 50% of Americans are too.  Financial literacy isn’t a single topic, like stock trading, but a broad range of topics and practices to manage your or your family’s money.  The good news is that it is very learnable, super practical because you can put the lessons into immediate use, and doesn’t require sophisticated math.  In fact, it only requires the arithmetic portion of math.


One way to think of financial literacy is like a bicycle wheel.  Each topic consists of a spoke.  The spokes together make the wheel although each spoke in of itself isn’t the wheel.  The basic topics of financial literacy are:


  • Understanding money: understanding money should be easy, right?  You use it everyday!  However, even though we eat everyday, it doesn’t necessarily mean we’re fluent in good nutrition.  Eating the wrong things continually can eventually lead to poor physical health, just like a consistently poor understanding of money can lead to poor financial health.  Understanding money involves how interest rates work, both when you’re receiving interest and when you’re paying interest, and terminology around earning money.  For example, gross pay is your pay before any deductions like taxes are taken out while net pay or net income is when all your deductions are taken out and constitutes the “size of your check” that you put in the bank.  There are other things around money that may be interesting, but they’re not necessary to have a strong command of financial literacy.  For example, who physically makes money and who controls the supply of money in a country can be interesting topics that you can pursue later.  In the United States, the answers are The Bureau of Engraving and Printing and the Federal Reserve, respectively.


  • Budgeting: don’t confuse budgeting with expense tracking!  Budgeting is intentionally allocating your money outflow to specific items.  Once you have a budget, you then use personal discipline to stay on budget.  Update the budget regularly as you get more information regarding the realities of your life.  Double checking your budget once a month is a good place to start.  Ask people you trust to look at your budget and you can double track theirs.  Tracking expenses is the practice of tracking what you already spent.  If you don’t have a budget, how do you know if your expenses are too high?  Think of your budget as the water pitcher you created.  The expenses are the water you’re allowed to take into your pitcher.

  • Banking institutions: you’re not going to stuff all of your cash under your mattress are you?  Even if you are using cash for all your purchases, you’ll probably need a bank to cash and receive checks.  Understanding how banks, and institutions like credit unions, can help you is crucial.  Otherwise, you might lose money on things like check cashing fees and lose the opportunity to make your money work through interest bearing accounts.

  • Saving & Investing: saving and investing aren’t the same thing.  Saving is putting money aside for more short term items like a vacation and an emergency fund.  Investing is putting money aside for longer term goals like retirement.  You need to do both and have strategies for both.

  • Retirement planning: Warren Buffet may want to work the rest of his life, but you may not.  Having a sense of when, where, and what activities you want to do when you retire is important to plan.  Otherwise, you might have to work the rest of your life like Warren Buffet but not actually enjoy it.

  • Goal Setting: money is a tool.  It’s your tool.  What do you want this tool to do for you?  That is, what goals do you want?  You can have many goals where some are short-term and some are long-term.  A short-term goal may be the yearly vacation with family, pay off credit card debt, or move into a new apartment.  Longer-term goals may be paying off student loans, buying a house, and retiring at the age you want.  Write these out, prioritize them by time and importance, and share them with others in your life.  


If you want free, comprehensive financial literacy education that goes into all of these topics,  download our free mobile app.  It’s available on both Apple and Android.

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