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The Importance of Financial Literacy

Money with graduation cap

Achieving dreams requires setting goals. This is especially true when your dream is something like owning a home. Owning a home is a financial commitment that often requires research and planning to achieve. Understanding the basics of money management and how money works is essential when you want to achieve something as complex and financially oriented as homeownership or any other large goals.

What is Financial Literacy?

Financial literacy simply refers to being able to understand and utilize a financial skillset in a way that improves your quality of life and enables you to achieve certain goals. These skills can be things like basic budgeting, financial planning for big life events like continuing education or buying a home, or learning how to understand and utilize credit cards.

Financial literacy is also a tool of empowerment. Understanding how our financial system works and knowing what behaviors, habits, and tools are available to you can help you be successful within that system. The knowledge and tools can then be passed along to others, enabling you to build up your family and community. This can be especially powerful for marginalized communities where education is one of the most significant barriers to financial wellness and material security.

While financial literacy alone will not bridge the wealth gap that the underserved in the U.S. experience, it is a crucial piece of the solution.


There are many spheres affected by financial literacy, so there is a lot of information available. Three of the most basic concepts are:

Budgeting: Budgeting is simply the act of organizing and managing the relationship between your income and your expenses. The act of tracking where your money goes can help you understand your financial needs and power regardless of how much money you have. There are many different types of budgets and budgeting techniques and tools. From scratching a basic monthly list of expenses on a legal pad to utilizing budgeting software simply knowing what you have and what you need goes a long way when planning for your future.

Credit and Debt: While the concepts of debt and credit lines have existed for hundreds of years, the U.S. has a particular system that you need to understand. In order to best utilize our credit system, you need to understand credit scores, interest rates, and the effects of debt on your credit worthiness and ability to borrow in the future.

Your credit score is a numerical value that basically represents how well you manage debt. It is affected by many factors including your history of borrowing money, how timely and consistent you were with paying that money back, and how many lines of credit or debt that you’ve had.

Interest is an additional sum of money you must pay on a credit line or loan in order to use it. Interest rates can be fixed or they can fluctuate with the market and are calculated as a percentage of the balance you are using.

For more information about your credit, check out New American Funding’s educational resources on personal finance.

Savings: Just like with budgeting, saving can be done a variety of ways. Whether it’s putting any extra money into an emergency fund, planning out a certain percentage of each paycheck to go towards a specific goal like buying a home, or just stashing a few dollars here and there, practicing saving money is one of the most important skills necessary to achieve financial goals.

Financial Literacy and Mental Health

A less taught about aspect of financial literacy is its relationship to mental health. Financial stress takes a toll on your mental health and, in turn, poor mental health can have negative effects on your financial decision making. If you’re feeling overwhelmed by your financial situation, go slow, give yourself space to learn, and begin with small steps.

Start by learning. There are many free educational resources online that can teach you about money. Figure out which skills and tools apply to your current situation. Everyone’s financial landscape is different and everyone is starting from a different space, so what works for one person may not work for you. Make sure to explore your options and create a plan that works for your unique needs and wants.


New American Funding’s Partnership With Uqual – Designed to help borrowers with personalized credit coaching

U.S. Government Website on Financial Literacy

Financial Literacy Resource Directory

There are also a number of nonprofit organizations available that offer resources and guidance to aid you on your journey to financial literacy.

For more information regarding home loans and other products contact New American Funding. One of our loan officers will be happy to answer any of your questions and let you know what is available for your unique needs.

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