Oportun: Financial Literacy vs. Financial Wellness

Financial literacy and financial wellness are critical to a secure financial future. These terms sound similar, and many use them interchangeably, but they have some key distinctions to understand. At the same time, it’s important to remember that achieving financial literacy can help people get a head start on working toward financial wellness. With that in mind, this article will explain how financial literacy and financial wellness work and some key differences between the two:

What is Financial Literacy?

Financial literacy entails how well someone understands financial terms, concepts, products, and other aspects of their financial situation. This can include topics such as:

• Budgeting
• Saving
• Personal loans
• Investments
• Taxes
• Retirement planning
• Credit cards

What is Financial Wellness?

Financial wellness is a more comprehensive concept detailing someone’s financial situation — from the state of their finances to their perceptions of money. As such, financial wellness may encompass topics such as:

• Financial security
• Financial literacy
• Habits
• Goals
• Beliefs about money

Financial Literacy vs. Financial Wellness: The Differences

Here are a few differences between financial literacy and financial wellness:

Scope

Financial literacy focuses on knowledge of money and finances. It concerns someone’s understanding of saving, investing, debt, and similar practical topics. Financial wellness is broader — financial literacy makes up only part of it. Financial wellness also considers factors like someone’s current financial situation, their beliefs around money and financial goals, and more.

Success

One knows they’re financially literate if they are well-versed in financial concepts. They can think and talk intelligently about different types of bank accounts, investments, the benefits of credit scores, credit cards, and similar topics.

However, being financially literate doesn’t necessarily mean an individual has achieved financial wellness. When one reaches financial wellness, they have reached or are on track to reaching their goals and can overcome setbacks with minimal interruption or stress. For instance, if one loses their job, they have an ample emergency fund to live comfortably while they look for a new job. Another example would be that if the economy slows down significantly, their investment portfolio may be designed to potentially resist such a downturn so that they do not lose significant wealth.

How to Achieve Financial Literacy and Financial Wellness

Financial literacy and financial wellness go hand in hand. Here are some tips for achieving both:

Engage in Continuous Education

Financial wellness starts with financial literacy. Read books and blogs, take online courses, attend workshops, and participate in finance-related forums to gain knowledge. After that, create a long-term plan and set up short-term goals to track progress. 

That said, learning never truly stops. People should continue educating themselves on literacy and wellness to optimize their financial futures. This can be done by keeping up with news impacting portfolios, learning about new investments, reading books, and participating in financial discussions with others.

Monitor and Track Finances Regularly

Monitoring and tracking finances regularly can improve one’s financial wellness by helping them stay on track with their goals and address any potential problems early on. However, it also improves literacy by helping them see the practical impacts of certain financial products, apps and software, habits, and strategies. Consider using apps and tools to maximize financial literacy through monitoring and tracking. They can give personalized tips based on one’s financial situation. For instance, someone may not realize they’re paying a significant amount of interest by carrying a monthly credit card balance. The software may recommend the person research personal loans to consolidate and refinance those debts.

Get Professional Assistance

People don’t have to go it alone with their finances. There are a variety of ways to get professional advice, including: 

• Financial advisor (for planning and investment management)
• Financial coach (for beliefs and emotions around money)
• Tax professional (such as a Certified Public Accountant)
• Estate planning lawyer (for estate planning)

As an individual builds wealth and their financial situation becomes more complex, professionals become more helpful in handling the difficult pieces of one’s finances.

The Bottom Line

Financial literacy consists of knowledge and understanding of financial concepts and principles. Financial wellness goes beyond just literacy, encompassing one’s beliefs about finances and their situation.

These two concepts work together. People should engage in continuous education to improve their financial literacy, confidence in their finances, and financial wellness. By monitoring progress and working with professionals, they can continue to improve their situation and learn more about their money as well. Following these steps can help one put their knowledge into practice to improve their financial wellness. Over time, they can work toward a bright and secure financial future.