How is financial literacy defined?

Financial literacy is defined as the ability to understand and use financial skills effectively. This encompasses a broad range of knowledge that includes not just the ability to read and understand financial statements, but also the capacity to make informed financial decisions, manage personal finances, save, invest, and navigate the complexities of various financial products and services.

Being financially literate means having a solid foundation in key concepts such as budgeting, interest rates, credit management, and understanding the impact of financial decisions over time. It plays a critical role in personal finance as it enables individuals to set goals, create plans to achieve them, and ultimately make choices that enhance their financial well-being.

In contrast, the other options focus on more specific aspects of finance. Investing in real estate and knowing stock market trends are valuable skills, but they are subsets of the broader concept of financial literacy. Similarly, preparing taxes is an important financial skill, but it does not capture the holistic understanding and application of various financial skills that financial literacy entails.