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How to Increase Your Financial Literacy

By Kim Petch

The Information JungleWith the economy having thrown many of us for a loop over the past couple of years, there is more demand than ever for quality, unbiased financial information. People have a lot of questions about personal finance, investing, and basic economics.

Some of them are very simple: How can I save more money? How much debt is too much? Should I save for retirement or pay down debt? Some are more sophisticated: What’s the safest place for my money right now? Is it realistic to expect the stock market to deliver average annual returns of 7% or better over the next 10 years? How will economic trends and central bank policy affect my job, my investments, and my life?

To help answer these questions, there are plenty of ways to increase your financial IQ in the form of television programming, books, magazines, newsletters, blogs, and financial advisory institutions like banks, insurance companies, and brokerages. Where do you start? How do you sort it all out? Who can you trust? I’ve put together a few guidelines for you here that will hopefully help you navigate what I like to call the “financial information jungle.”

Welcome to the Jungle

The quantity and variety of financial information out there can be dizzying. Unfortunately, that can cause many of us to put financial management off indefinitely. Rather than staying out of the jungle altogether, you can make the most of what it has to offer by following a few simple rules:

1. Gather Lots of Information

When you’re just beginning your trek into the jungle, you’ll want to take a general survey of the terrain first. Once you understand the main debates out there, you can start to figure out where you stand on issues like deciding what is the best way to use credit cards, if at all. Additionally, you can begin to narrow down your information consumption to a few trusted sources as you learn which sources are the most reliable.

2.  Consider the Source

Once you’ve followed any given form of media for a while, you’ll start to notice patterns. Certain people or publications consistently offer a specific type of advice or perspective on personal finance, investing, or economic issues. If you get to know where each person is coming from, you will be better able to judge whether the information they provide is useful to you.

Always consider their motives for providing information. Is the adviser trying to sell investments? Is that particular blogger qualified to discuss financial matters? Does a financial T.V. channel have a vested interest in keeping you concentrated in stocks rather than savings accounts? Is the information being given to you designed to sell advertising or provide you with some quality financial education? (Incidentally, with this last one, there’s nothing wrong with it doing both so long as the information is truly helpful.)

3. Know Yourself

You know what your needs, tendencies, and risk tolerance are better than anyone. While keeping an open mind is important, it’s probably better to steer clear of advice that does not fit with your value system. If your risk tolerance is low, it is not worth wasting your time listening to or reading information about penny stocks or entrepreneurial endeavors.

If you are very young and can afford to take on a little more risk, your needs will be much different. If you just can’t keep a credit card in your wallet without maxing it out, you will likely need to take a much different approach to your finances, so don’t listen to someone who has no problem controlling their use of credit and pays off the balance every month.

4.  Beware of Data Mining

Data mining refers to the tendency most of us have to focus on facts that fit our preconceived notions. Many financial commentators use lots of charts and statistics to support their ideas. That can be helpful sometimes, but it’s important to pay close attention to what the numbers are actually telling you. There’s an old saying that warns: “Torture numbers, and they’ll confess to anything.”

5. Diversify Your Information Supply

If there’s one area where diversification still works really well, it’s in the information jungle. While it’s important to avoid overloading ourselves with information, no single source can provide everything we need to know. I always like to hear both sides of a debate before I make any decisions. In fact, I’ll often actively search out opinions that differ from my own in order to make sure I’m not missing something.

Trust, Trim, and Tune Out

While expert advice is often helpful, many people are turning to blogs like Money Crashers for guidance these days. For one thing, the information is free. Further, it’s usually unbiased in the sense that most bloggers are not selling financial services. Many people feel disillusioned and turned off by traditional information sources such as large media outlets, government organizations, and financial professionals since most of them failed to accurately predict the recent economic turmoil. Reading a good financial blog is sort of like having a neighbor or friend who’s really adept with money help you out.

No matter how you choose to access your financial information, it’s a good idea to occasionally re-examine your approach from time to time to ensure you’re getting the most bang for your buck from the financial media jungle. Revisiting your RSS feeds and email subscriptions can do wonders for your ability to focus and put all of that good financial information into practice. And don’t forget to just tune things out and form your own opinion once in a while. Some of my most helpful epiphanies have come to me during peaceful moments when everything is off.

Do you find it difficult to navigate the financial media jungle? Do you have any other tips for beginners?

Kim Petch
Kim is the writer behind Balance Junkie, a blog about personal finance, economics, investing, and life balance. You can also find her articles featured on Seeking Alpha. She's a big fan of her three sons, paying down the mortgage and baseball - in that order.

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  • http://www.gainmoneycontrol.com KP

    Building knowledge is the key to becoming financially literate. It’s also helpful to learn from a mentor who demonstrates strong money management skills.

    • http://www.moneycrashers.com Kim Petch

      Thanks KP. Choosing a good mentor can be one of the best ways to build your financial literacy. Having a knowledgeable friend to bounce ideas off or ask for advice is a great way to learn – and hopefully stay out of trouble too! ;)

  • Kaz

    Or, you could read this website..

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