What is the definition of financial literacy?

Financial literacy is best defined as understanding and using financial skills effectively. It encompasses a range of competencies that enable an individual to make informed and effective decisions regarding their financial resources. This includes budgeting, managing debt, investing, and understanding financial products and services.

While the other options touch on elements related to financial knowledge, they each represent narrower aspects of what financial literacy entails. For instance, calculating interest rates is certainly an important skill, but it is just one component of the broader concept of financial literacy. Similarly, knowledge of economic theory adds to one’s financial understanding but does not encompass the practical applications and skills necessary for managing personal finances. Assessing financial risk is a valuable skill, particularly in investment contexts, yet it also falls within a narrower scope compared to the comprehensive skill set that financial literacy represents. Overall, option A captures the holistic nature of financial literacy, emphasizing both understanding and application in real-world situations.