The Four Pillars of Financial Literacy (2024)

To many, the world of finance is incredibly intimidating; filled with complex terms and concepts not intended to be understood by mere mortals. This, thankfully, is a misconception. Financial literacy is well within the reach of anyone of any level of education.

What is financial literacy?

Financial literacy is having a basic grasp of money matters and its four fundamental pillars: debt, budgeting, saving, and investing. It’s understanding how to build wealth throughout one’s life by leveraging the power of these pillars. Put very simply, financial literacy is the difference between living from pay check to pay check, and being able to afford the things you want and need, to building wealth that works for you, which is why financial literacy is so important.

1. Debt

Debt is money you spend that isn’t yours. If you borrow money from the bank, use a credit card, or take out a short-term loan, or a payday loan, you are accumulating debt.

While debt is viewed negatively, for most people, it is necessary because only the extraordinarily wealthy can afford to pay for a house, car, or education with cash. The first lesson here, is to understand the difference between good debt and bad debt and to avoid bad debt as far as possible.

Good debt is considered money borrowed for things that are absolutely necessary for making a life e.g. a house and for advancing your money-making potential e.g. an education.

Bad debt is considered borrowing money or using a credit card to pay for things you don’t need, such as expensive clothes, hi-tech electronics, eating out at restaurants, going on holidays, etc.

If you'd like to learn more, you can read our simple guide to understanding debt, or visit Wonga's Money Academy Debt Section.

2. Saving

Saving is an essential part of financial wellness, a secure present, and a happy future. Wealth is built through spending less of your income so that you can achieve the following:

  1. Realise important goals, whether it’s to send your kids to university, fully paying off the loan on your home, and/or enjoying your retirement.
  2. Establish an emergency fund to cope with life’s curveballs, such as home or car repairs, illness, or unemployment. This should be about three to five months’ worth of income.
  3. Treat yourself every now and then to the things you really want, such as an overseas holiday or a new sound system.

Putting your savings into an interest-yielding bank account not only keeps your money safe, and out of temptation’s reach, but also allows you to grow it over time.

Visit Wonga's Money Academy Saving Section

3. Budgeting

Budgeting is the life skill of planning and managing your money. By understanding exactly where your money goes every month, you are empowered to create an actionable plan by which you can spend less, by curtailing those unnecessary expenses and saving more for the things you need and want.

The rule here is that money coming in (your total income) should always be greater than money going out (your total expenses). The difference between the two values is what you should be stashing away as savings.

Budgeting helps you plan for short, medium, and long-term expenses, enabling you to save accordingly to afford all three. It is, therefore, entirely necessary for financial security and independence.

Visit Wonga's Money Academy Budgeting Section

4. Investing

Investing is all about creating and growing the wealth you need to enjoy a financially secure and happy future. It’s about putting your money into something that will make you a profit over time, such as property, retirement funds, and unit trusts.

The growth of your investment’s value can establish a second, monthly income for you, or, if and when you sell it, you’ll have more money than you originally invested. The funds generated by your investments can then be used to see to your financial needs now and when you retire.

Visit Wonga's Money Academy Investing Section

Become Financially Literate Today

Financial literacy enables you to:

  • Build wealth
  • Protect yourself in case of emergencies
  • Achieve your goals
  • Afford the things you really want
  • Protect and care for your family
  • Enjoy a happy retirement
  • Live without money-stress

If you are currently a slave to your paycheck and have no savings to fall back on, it’s time to become financially literate. You can begin today with theWonga Money Academy's fun,focused online videos and quizzeson debt, saving, budgeting, and investing. If you'd like to explore some other ideas, we also have a great list of free financial literacy resources.

The Four Pillars of Financial Literacy (1)

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The Four Pillars of Financial Literacy (2024)


What are the four pillars of financial literacy? ›

Financial literacy is having a basic grasp of money matters and its four fundamental pillars: debt, budgeting, saving, and investing. It's understanding how to build wealth throughout one's life by leveraging the power of these pillars.

What are the 4 pillars of finance? ›

Everyone has four basic components in their financial structure: assets, debts, income, and expenses. Measuring and comparing these can help you determine the state of your finances and your current net worth.

What are the 4 steps to financial literacy? ›

Key steps to attaining financial literacy include learning how to create a budget, track spending, pay off debt, and plan for retirement.

What are the four pillars of financial wellbeing? ›

Are you financially healthy? Many financial experts agree that financial health includes four key components: Spend, Save, Borrow, and Plan. It is crucial that you actively work on improving the health of each one.

What are the main pillars of the financial sector? ›

banks, the goods market, and the labor market. foreign exchange market, the bond market, and the government. The three major pillars of the financial sector are the: stock market, the labor market, and the bond market.

What are the 5 pillars of financial literacy? ›

This article will explore the five basic principles of financial literacy: earn, save & invest, protect, spend, and borrow, providing you with actionable insights to enhance your financial knowledge and make the most of your resources.

What are the first 4 steps to financial success? ›

4 Steps to Financial Success
  1. Step 1: Know Your Numbers. Comparing your income to monthly payments will help you budget for savings. ...
  2. Step 2: Protect What's Yours. Insurance is the best defense against the unexpected. ...
  3. Step 3: Fund Your Future. How do you see your retirement? ...
  4. Step 4: Build Your Wealth.

What are the key points of financial literacy? ›

Key aspects of financial literacy include knowing how to create a budget, plan for retirement, manage debt, and track personal spending. Financial literacy can be obtained through reading books, listening to podcasts, subscribing to financial content, or talking to a financial professional.

What are the basics of financial literacy? ›

Financial literacy involves concepts like budgeting, building and improving credit, saving, borrowing and repaying debt, and investing. Becoming more financially literate might make financial decisions related to loans, major purchases and investments less daunting.

What are the 4 pillars of crisis management? ›

The website has created an infographic detailing the four pillars of crisis management: monitoring, being proactive, taking action, and reviewing and learning. According to the infographic, 59 percent of businesses have experienced a crisis, but only 54 percent have a plan to counteract it.

What is four pillars sustainable? ›

The term sustainability is used to broadly indicate initiatives and actions aimed at the preservation of a particular resources. However, it refers to four distinct areas: human, social, economic and environmental – known as the four pillars of sustainability.

What are the pillars of financial stability? ›

This broad idea of financial stability will focus on three main parts, saving, credit/debt, and consumer protection. 1. Saving. Financial stability begins with knowing you can handle an unexpected expense with ease and not panic.

What are the 4 easy steps of setting a personal or financial goal? ›

Consider working through these five steps to set your financial goals.
  • List and prioritize your financial goals. ...
  • Take care of the financial basics. ...
  • Connect each financial goal to a deeper motivation. ...
  • Make a financial plan to reach your financial goals. ...
  • Revisit your financial goals regularly.

What are the three C's in financial literacy? ›

Character, capital (or collateral), and capacity make up the three C's of credit. Credit history, sufficient finances for repayment, and collateral are all factors in establishing credit. A person's character is based on their ability to pay their bills on time, which includes their past payments.

What is step four of the financial planning process? ›

4) Evaluate Alternatives

This is your chance to discuss the alternatives face-to-face and take necessary actions bearing in mind your current situation, financial standings and personal interests. If you have any concerns regarding your financial planner's recommendations, those can be altered and revised.

What is the 50/20/30 rule? ›

The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.

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