The 6 Concepts You Should Know to Be Financially Literate

August 6, 2021

Budgeting. Cash flow. Yield. FICO scores. Net worth. Equity.

The proliferation of terminology—and jargon—surrounding financial literacy is enough to make your heard hurt.

So, we are here to make things a little easier, to offer just six concepts that will go a long way toward helping you understand what you need to know when it comes to personal finance. The key, says Andy Baxley, a Chicago-based senior financial planner with the Planning Center, is to focus on concepts that help those in search of financial literacy acquire not just instructions about what to do, but insight into why they should do it.

What follows is our attempt to do just that.

Compound interest

If there’s one idea that every financial adviser would like to drum into the heads of their clients, this is it. “Compound interest is the ultimate equalizer,” says John Eing, a partner at Abacus Wealth Management in Calabasas, Calif. “It does not care who you are, where you come from or what you do. It will relentlessly work for you or ruthlessly punish you without regard.” It’s about discipline and time, and is a tool that works regardless of whether you’re a sales clerk at Walmart or a hedge-fund manager.