What Is Financial Literacy?

Financial literacy is the ability to understand and effectively use financial skills, including budgeting, saving, investing, borrowing, and managing debt. It’s not just about knowing the terms—it’s about making confident, informed decisions about your money.

Unfortunately, many young adults enter adulthood without formal financial education. A 2023 Australian study found that only one in three young people felt confident managing their finances. Yet this is exactly the age when critical financial decisions are being made: taking out student loans, renting for the first time, signing up for credit cards, or buying a car.

1. Budgeting: Know Where Your Money Goes

Budgeting is the cornerstone of personal finance. It doesn’t have to mean spreadsheets and penny-pinching—it simply means having a plan for where your money goes.

Start with the 50/30/20 rule:

• 50% for needs (rent, bills, groceries)

• 30% for wants (eating out, entertainment)

• 20% for savings and debt repayment

There are dozens of budgeting apps like YNAB, Pocketbook, or Frollo that can help you track your spending automatically. The goal is to spend intentionally—not impulsively—and make sure your financial priorities are being met.

2. Emergency Funds: Your Financial Safety Net

Life is unpredictable. Having an emergency fund—typically 3 to 6 months’ worth of expenses—protects you from unexpected costs like medical bills, car repairs, or losing your job. Without it, you may fall into debt just to cover basic needs.

Even if you can only save a little each week, consistency matters. Automate your savings so that a portion of your income is transferred to a separate, easily accessible savings account as soon as you get paid.

3. Credit Cards: Useful Tool or Dangerous Trap?

Credit cards can help you build a credit history and earn rewards, but only if used responsibly. The danger lies in treating credit like “free money.” Interest rates on unpaid balances are often 15–20% or higher, which can quickly snowball into unmanageable debt.

Smart tips:

• Pay your balance in full every month

• Don’t use more than 30% of your credit limit

• Avoid using credit to finance everyday expenses

If you're unsure about your spending habits, consider starting with a low-limit card or prepaid debit card.

4. Investing: Start Early, Grow Long

Thanks to the power of compound interest, starting to invest in your 20s can significantly increase your long-term wealth—even if you're only investing small amounts. You don’t need to be rich or have a finance degree to begin.

In Australia, you can invest through platforms like CommSec Pocket, Raiz, or Superhero, many of which offer access to ETFs (exchange-traded funds) with low fees and diversified portfolios.

Don’t try to “time the market.” Focus on long-term investing, regular contributions, and understanding your risk tolerance. Superannuation also plays a key role in your future wealth—consider contributing extra to take advantage of tax benefits and long-term growth.

5. Debt: Know the Good from the Bad

Not all debt is bad. Student loans (like HECS-HELP in Australia) have low interest and flexible repayment terms, and a mortgage can be a tool for building equity. But high-interest consumer debt—like credit cards, payday loans, or buy-now-pay-later services—can be financially crippling if not managed properly.

Learn to prioritise paying off high-interest debt first, and don’t take on new debt without a clear plan to repay it.

6. Setting Financial Goals: Big Picture Thinking

It’s easier to make smart money decisions when you have clear goals. Whether it’s saving for travel, buying a car, moving out, or building a deposit for a home, setting short-, medium-, and long-term financial goals gives your money direction.

Make your goals specific, measurable, and time-bound. For example: “Save $5,000 for a Europe trip by July 2026” is better than “Save more.”

Taking Control of Your Financial Future

Financial freedom doesn’t happen overnight—but the habits you build in your 20s have long-lasting effects. By learning the basics of personal finance now, you set yourself up for a future that’s less stressful, more flexible, and full of possibility.

In a world where money touches every aspect of life—career choices, relationships, mental health, and independence—being financially literate is one of the best investments you can make in yourself.