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Financial Literacy for Informed Decisions

Making a big purchase, like a home, requires financial knowhow that’s not often taught in school. Learning the basics can help avoid poor decisions.

NEW YORK – Financial literacy is a crucial skill to make informed decisions about your money. Understanding concepts like budgeting, investing and debt management is more important than ever for your financial well-being. Here are important financial topics you must know plus resources to put you on a path to thrive.


Budgeting is one of the most foundational financial topics of personal finance. Budgeting is deciding how you'll allocate your money. It involves figuring out exactly how much you earn and where it's going to go. Budgeting is not about perfection. It's about the review, your progress and implementation.

There's not necessarily one right way to budget. Instead, it's about finding the strategy that works best for you. People have success with several budgeting methods, including the 50/30/20 budget method; zero-based budget, in which you find a spot for every dollar, even if that spot is savings or debt payoff; and pay-yourself-first, in which you figure out how much you want to pay yourself each month, meaning how much you want to put toward your savings and debt.


When it comes to financial literacy, it's important to understand the types of debt and how to manage them.

Every debt is either revolving or non-revolving. Revolving debt is one where you can continuously spend and pay off the debt. The most common revolving debt is a credit card, though a line of credit is also a type of revolving debt.

Non-revolving debt is one where you borrow a lump sum and then pay it off over a specific term. Non-revolving debts include mortgages, student loans, personal loans and car loans.

Debts are also secured vs. unsecured. A secured debt is one that is secured by collateral or an asset the lender can seize if you don't make your payments. Mortgages and auto loans are secured debts since your lender can seize your home or car if you don't pay them back.

Unsecured debts don't have any collateral behind them. The lender can still take legal action to get their money, but there's no asset they can seize from you. Student loans and credit cards are examples of unsecured debts.

It's important to know about and fully understand each debt you have. For each debt, you should know your total balance, interest rate, minimum monthly payment and estimated payoff date.

Net worth

Your net worth is one of the most important aspects of your financial picture. Your net worth is the difference between what you own and what you owe. To calculate your net worth, start by adding up your assets, which includes money in your bank accounts, investment accounts and physical assets like your home. Next, add your debts. Subtract your debts from your assets, and you get your net worth.

It's OK if your net worth isn't where you want it to be right now. The goal is simply to watch your net worth increase over time as you save money and pay off debt.


Credit refers to the ability to borrow money. But when people talk about credit, they're usually talking about either their credit report or their credit score.

Credit report: Your credit report is a full list of all your current debt accounts, including how much you owe, who you owe it to and the monthly payments you've made. It also includes possibly negative information, such as any accounts in collections, and whether you've filed for bankruptcy.

When lenders are deciding whether to give you money, they look to your credit report to see how responsibly you've handled debt in the past. You can download a free copy of your credit reports at

Credit score: Your credit score is a number between 300 and 850 which is essentially a numerical rating of your credit report. It's a snapshot of how responsible you are with debt. They range from very poor (300-579) to exceptional (800-850).

The importance of credit: Your credit score is one of the most important numbers in your financial toolbox. Someone may run your credit anytime you apply for a loan or credit card, rent an apartment or even apply for a job.

A poor credit score can result in being denied loans or stuck with high interest rates. It can also result in you being turned down for apartments and jobs. A very good or exceptional score can potentially save you thousands with better interest rates.


It probably doesn't come as a surprise that saving is one of the most important components of personal finance, but most people simply aren't doing it. In fact, 2024 data shows that 44% of Americans couldn't afford to pay for a $1,000 emergency without taking on more debt, according to Bankrate.

The saving priority most people should have - an emergency fund. Your emergency fund can help you cover any unforeseen expenses. It can also serve as an income replacement if you lose your job. Most experts recommend having between three- and six-months' worth of expenses saved in your emergency fund.

When it comes to saving for a big goal, the best way to reach it is to divide the total number you need to save by the number of months you'd like to have it saved. That will tell you how much to save each month to reach your goal.


This is one of the most common goals and financial topics, offering the potential for long-term wealth accumulation through equity growth. Additionally, homeowners can enjoy tax deductions on mortgage interest and property taxes in many jurisdictions.

Here are a few things to keep in mind when it comes to buying a home:

  • Only buy what you can afford - check out a mortgage affordability calculator to determine how much of mortgage you may be able to obtain.
  • A general rule of thumb is that your housing costs shouldn't exceed 30% of your monthly income. Unfortunately, lenders often approve borrowers for far more than that.
  • No one knows your financial situation like you do -- not even a lender. Be sure that the monthly payment for your home fits comfortably within your budget.


If there's ever an emergency -- and chances are that there will be -- you'll be glad you have insurance. Buying insurance involves paying a company a monthly premium to cover your liabilities in an emergency. Types of insurance that most people should have include homeowners or renters' insurance, auto insurance, life insurance and health insurance.

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