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Like a book: How to nail financial literacy

Published 23 July 2021

How financially literate are you? Become the master of money matters with our quick guide to common financial terms.

Financial wellbeing… what’s that you ask? Just kidding! You probably already know that it’s a whole lot of stress-busting, life-affirming awesome! When you feel like you’re actually on top of your money.

But just how financially literate are you overall? Do you know your compound interest from your credit score? Your emergency fund from your loan commitments? Our introduction to some common financial terms will help you on your way to becoming the master of money matters – a goal we can all get behind.

Of course, if you’ve already completed our free six-week Financial Wellbeing Challenge, you’ve got a multitude of tips and tools at your disposal to help you get on top of your money. And we’re guessing you’ve got the lingo to prove it. If you haven’t joined the ANZ Financial Wellbeing Challenge yet, then now’s the time to see how you stack up.

Now, time to get your trivia hat on and get scoring — those money goals that is.

Financial situation

It mightn’t be a finance term per se, but it’s crucial you understand and can accurately assess your financial situation. How would you describe your financial situation as it currently stands, on a scale of renovator’s dream to masterpiece? How confident are you about your financial situation in the next 12 months? Realistically assessing your financial situation now – taking into account existing savings and debt – is the crucial first step on the path to financial wellbeing. Bonus points for taking our simple quiz to determine your financial wellbeing score.

Credit and loan commitments

We’re all about budgeting smarter, not harder. But in order to create a savvy and realistic budget, you need a thorough knowledge of your credit and loan commitments – the debt you’re required to service month-on-month. Unsure? Gather your credit card statements and loan account info together - yes even those buy now pay later purchases that seemed like a good idea at the time - and then go through them systematically. We recommend writing down each of your monthly debts under headings (such as credit card, car loan, student loan), then displaying these figures somewhere prominent like the fridge. There’s nothing like a regular reminder of your debts to help you stick to that freshly-created budget. You can then do the same for other expenses such as rent or mortgage.

Credit score

Your credit score is a number based on your credit history that lenders and banks take into account when determining whether or not to lend you money. Since 2018, Australia has implemented comprehensive credit reporting, which is designed to provide lenders with a more complete picture of your history. Your credit score is based on factors including the number of loans you have, your usual repayment amount and whether you make your repayments on time – among other things. Understanding your credit score and how to improve it is a great incentive to help you better manage debt. Staying across what you owe and when it’s due should help with any potential missed payments or defaults – key factors to how your credit score is calculated.

Emergency fund

An emergency fund is a lump sum that acts like a buffer in case of serious financial hardship (you lose your job, your car breaks down or your heating carks it in the middle of winter, for example). Also known as a ‘rainy day fund’, the emergency fund needs to consider your outgoings. Do you have dependents or pets? How much does your life cost? How long would you need if you had a break in income? Experts recommend aiming for six months’ worth of expenses as a minimum, but even a few thousand dollars stashed away could provide a crucial bubble of protection should things go south.

Compound interest

So you’re nailing this whole financial literacy thing, but do you know about the different types of interest? Compound interest accounts have a snowball effect on your savings. You earn interest on the money you deposit, and on the interest that has previously been paid into your account. Yes, that means you could potentially earn interest on your interest. Make sure you choose a compound interest account that works for you, then get saving – maximising your interest is an important part of organising your accounts.

All Ordinaries Index

Ready to invest in your future? Then you might want to research investing in the All Ordinaries Index – the index of share prices for the top 500 largest companies listed on the Australian Stock Exchange. Or check out our beginners guide to share investing if you’re just starting out.

Look at you – the master of financial literacy and primed to make the most of your money. Knowing as much as you can about your own financial situation is one of the best tools you have to making your money work for you and maximising your saving potential. And remember, no matter where you are in your financial journey, you never stop learning.

Check out our Financial Wellbeing Program

Getting started on the road to financial wellbeing is easier than you might think. Join our Financial Wellbeing Challenge today to find out how you jumpstart your journey.

Start today

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The information set out above is general in nature and has been prepared without taking into account your objectives, financial situation or needs.  Before acting on the information, you should consider whether the information is appropriate for you having regard to your objectives, financial situation and needs. By providing this information ANZ does not intend to provide any financial advice or other advice or recommendations.  You should seek independent financial, legal, tax and other relevant advice having regard to your particular circumstances.