Financial literacy is the ability to understand and effectively use various financial skills, including personal financial management, budgeting, and investing. It forms the basis of your relationship with money, hence it is a life-long journey of continual learning. It is important to possess these financial skills since this is what prepares you for everyday facets of life such as taking loans, making sound investments, insurance, mortgages and so on. Being financially literate prepares you for unforeseen financial barriers which significantly lowers your chances of encountering personal economic distress. It equips you with knowledge on how to maneuver tough economic times where a lifetime of financial well-being is the end goal.


Earnings are money you acquire from a job (employment), your business or returns you make on various investments. Majority of the population earn from employment where they receive a paycheck. With thousands of students enrolling in University each semester, it is important to consider future earning potential of the course(s) you take. You can do so by consulting professionals in your field of interest. This may not adequately represent your future earnings but it gives you a rough idea of what your income will look like once you’re working. Therefore take time and ask questions so that regardless of what your goals are, you get a return of your investment in education.

Savings and investments

Understand the workings of financial institutions and services accessible to you. First open a saving account then a checking account. A savings account is better for storing money and earning interest. Withdrawals made from this account should be minimal so as to allow for the growth of your savings which will in turn lead you to explore long-term investments and planning for retirement. A checking account is for everyday transactions such as purchases, bill payments and ATM withdrawals. They earn less interest or none.


Differentiate between your needs and wants. Have a monthly and even weekly budget of your expenditure to ensure discipline on your part and also for to keep track of where your money is going. How you spend your money becomes a personal reflection of your values, lifestyle, and financial behavior.


When you borrow, you acquire debt to create assets. Examples are 1) student loans which finance your educational goals, 2) mortgages to buy homes, 3) business loans to create a self-employment opportunity or to build your business and, 4) real estate investments. These are all good examples of how the money borrowed can be converted into assets and accumulate wealth.


Protecting entails 1) Insurance, 2) ID Theft, and 3) retirement planning.  A lifetime of financial well-being and protection is your goal. You ought to stay protected at all levels.  Educate yourself on:

1) Risk management which is the forecasting and evaluation of financial risks together with the identification of procedures to avoid or minimize their impact

2) Insurance coverage which is the amount of risk or liability that is covered for an individual or entity by way of insurance services

3) Identity theft protection  which guards against the fraudulent practice of using another person’s name and personal information in order to obtain credit, loans and more,

4) Fraud

5) Scams

Acquiring this knowledge will cumulatively help you master self-financial protection as well as your family’s and implement the tactics that best suit you.

I hope that this provokes more interest in you to research on this subject and that you make decisions that promote optimal health for your finances.

By Wanjiru Muhoro | Writer

1 thought on “<strong>THE BASICS OF FINANCIAL LITERACY</strong>”

  1. Thanks for sharing these tips we need a reminder now more than ever thanks to these challenging times.

    John Mulamba- Kilimani, Nairobi


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