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  • Writer's pictureMelody Bell

Financial Literacy Is Out, Financial Well-Being Is In

Although still widely used in the public, amongst the groups that deliver financial education, financial literacy has become outdated. We now understand this societal shift we have been working towards goes well beyond creating a financially literate population. January is Financial Wellness Month, so I thought this would provide a good opportunity to explain the evolution from financial literacy to financial well-being.

Financial Literacy

When it started to become popular to teach people how to manage their money, the term used was financial literacy. 

Financial literacy is one’s knowledge of financial definitions, terms, and concepts. 

My experience teaching personal finance for two decades has shown that learners do grasp financial concepts. I can convey concepts like one should spend less than one earns or the pitfalls of taking on too much debt. 

Financial Capabilities

Still, over the years it became apparent that it is not enough for someone to just have the knowledge (literacy), one also needs to feel capable to put that knowledge to use. This is when the term financial capabilities came to become more widely used over financial literacy. 

Financial capabilities are an individual’s ability to utilize the knowledge and know-how (literacy) to take action (access) in their own self-defined best interest. 

Although as a society, we have been forced to manage more of our finances than previous generations, we have not been provided the know-how and access we need to successfully manage our money. 

My grandparents grew up in post-depression times. This post-depression mindset urged them to be savers. My grandfather would purchase a $25 Series EE government bond with each paycheck and did this for years. He worked for the same company his entire career and retired with a pension. Debt was seldom assumed and when it was obtained it was from a familiar face on a handshake. Wall Street was a far-off land in their minds. 

Today companies and employees are not loyal to each other. We are expected to bear the brunt of saving for our retirement and must decide where those savings are best put. We are bombarded by offers to obtain debt, even when it is not in our best interest. Those most successful with navigating their finances are likely to have role models, been taught how to properly manage their money, and be white males. 

Inequality is long rooted in U.S. history. Some examples include the expropriation of Native American land, treating African Americans as an asset instead of people, to women having to give men control over their property. 

Minoritized and marginalized populations historically and in the present day have not been provided equitable access to financial products and services. The financial sector was established to increase the wealth of wealthy individuals. Legislation has been passed, but inequities still exist. Providing financial education to increase financial literacy is only effective if it can be put to use through access. 

Financial Well-Being

Today we understand that it is not enough to have the knowledge and feel capable of using the knowledge. There are so many different factors that contribute to one’s financial well-being. 

The National Endowment for Financial Education does a good job of depicting financial well-being through the Personal Finance Ecosystem. Understanding that we all have foundational factors, and lived experiences that, when combined with the knowledge and access, feed into our current state of financial well-being and that our state of financial well-being changes over time. Financial well-being is self defined and one's definition may change over time.

Additionally, there are external factors that we have no control over like financial discrimination or micro and macro economic factors. Several pieces of legislation have been enacted to thwart financial discrimination, yet we still regularly hear of these unlawful practices taking place. This is why the Consumer Financial Protection Bureau was created and continues to stay very busy today.

How Financial Education Plays a Role in Financial Well-Being

As a financial educator, when I first viewed the Personal Finance Ecosystem it deflated me. Financial education is just one influencer to one factor in the whole ecosystem. Then I took a deep breath and thought more about how I can use my new understanding of financial well-being to improve how I deliver financial education. 

Incorporating Culturally Responsive Teaching and Social and Emotional Learning strategies into personal finance education provides a human-centered approach to delivering financial education. 

If you're interested in exploring how North Starr Consulting can further support your financial education initiatives, we invite you to get in touch with our team of skilled experts in personal finance and nonprofits. At North Starr Consulting, we understand that every business and educational institution is unique, which is why we offer customized education and business consulting services tailored to your specific needs and goals.

With a team of experts in financial education and nonprofit strategy, we're here to help you reach your full potential. Contact us today to start a conversation about how we can collaborate to enhance your financial education initiatives and achieve your goals.

North Starr Consulting

Managing Director


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