Financial literacy is the competence to understand and effectively apply various financial skills, including personal financial management, budgeting, and investing. It is an essential skill that enables individuals to make smart decisions with all of their financial resources. This encompasses more than just the ability to balance a checkbook or compare prices; it also includes a deeper understanding of the principles behind debt, compound interest, financial risk, and the time value of money. Financial literacy provides the foundation for key financial decisions that affect everyday life, allowing individuals to plan for long-term goals and navigate the complexities of the financial landscape.

Financial literacy can be gained through life experiences that involve managing money. Creating and sticking to personal budgets, investing in stocks or mutual funds, and planning for retirement are all practical ways to develop this skill. Being involved in the financial management of a small business, whether it's one's own or as an employee, can also provide valuable insights. Additionally, engaging in self-education through reading books, attending workshops, and using financial management tools can build knowledge. Experiences like purchasing a home, saving for a child's education, or navigating the complexities of tax laws naturally enhance financial literacy. Learning from financial mistakes and seeking advice from more knowledgeable individuals can further refine one's financial decision-making abilities. Through intentional practice, reflection, and a commitment to continuous learning, individuals can improve their financial literacy, which is crucial for making informed decisions that lead to financial stability.