What is financial literacy? It starts with credit, debt and savings knowledge

At some point, we all need to make important decisions about our personal finances. There is much to consider regarding our investments, savings, retirement, debt, credit, etc. It's therefore essential that we educate ourselves about sensible financial practices. This is called financial literacy - the knowledge required to be able to make sound and responsible financial decisions. It focuses on the ability to manage personal finance matters in a financially competent way.

 Financial literacy includes key concepts such as budgeting and saving, as well as more advanced topics like compound interest and debt management. In this blog about what is financial literacy, we look at the role of credit, debt and saving in your personal finance plan.

Establishing a good credit profile

Establishing and maintaining good credit can lay the foundation for your future finances. Here’s a few tips for building good credit:

  • Use your credit cards and make timely payments - Late payments may indicate to your creditors that you are unable to manage your debts responsibly.
  • Avoid maxing out your credit cards - Make more than the minimum payment due and keep credit utilisation low.
  • Minimise credit applications - Too many applications done too soon may affect your credit score negatively.
  • Request your credit profile report from a credit bureau - At least once a year. Review for discrepancies, errors, fraud and identity theft issues.
  • Keep some accounts open and active - Do this for as long as possible as creditors like to see established and proven credit history.

Managing debt

Although acquiring and using credit allows you to build your credit profile, taking out too much credit can get into debt trouble. If you are having issues managing your debt, consider a debt consolidation loan. Debt consolidation loans merge your credit facilities into one loan, making it easier for you to manage, saving you on fees and resulting in an overall lower cost of credit. Consolidating helps to make it easier for you to fulfil your payment obligations.

It’s certainly more convenient to make one monthly payment instead of having to service many different loans or credit cards. 

Investing, saving and your retirement plan

How much you save or invest today can have an immeasurable impact on your financial goals, so it’s important to start early. For first-time investors, it may be a good idea to sit with a financial advisor who can help to put you on the right path. Here are a few things to consider regarding your investment strategy and planning for your retirement.

  • What’s your risk tolerance? Do you have an appetite for risk or are you risk averse? Would you lose sleep if the value of your stocks or portfolio suddenly plunged? If you’re risk averse, the stock market with its volatility may not be your best option.
  • What’s your Investment time horizon? Are you looking to invest for the short term or the long term? Do you plan to liquidate your investments soon or are you in it for the long haul and saving towards retirement?
  • What’s your overall investment objective? Do you want capital appreciation or a steady income via dividend or interest payments?
  • Is your portfolio well diversified across different asset classes such as Stocks, Bonds and Commodities to minimise risks and maximise returns?

Find out more about saving with African Bank’s Access Accumulator account.

Are you financially literate?

Good financial literacy helps to ensure you have a short-term view and a long-term view of your finances. Figure out if you are financially literate by answering these questions:

  • Do you know how to budget?
  • What is your debt status? Do you know how much you owe and to what institutions?
  • Do you know what your monthly living expenses are?
  • Do you understand the concept of compound interest?
  • Do you have insurances in place to protect you financially in the event of a major life emergency or change in circumstances?

If you answered no to two or more of the questions above, it might be time to do the work required to become financially literate. Thankfully, you’re in the right place – start exploring the blog posts on the African Bank blog. We already have some of the answers for you!

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