Define "financial literacy."

Financial literacy refers to the capability to manage personal finance and investing effectively. This encompasses a range of skills and knowledge necessary for making informed financial decisions, such as budgeting, saving, investing, and understanding credit. A financially literate individual can analyze their financial situation, set financial goals, and take the necessary steps to achieve those goals, ultimately leading to a more secure financial future.

The importance of this definition lies in its practical application in daily life. Individuals who are financially literate are better equipped to handle expenses, understand financial products, and recognize the implications of debt. They can differentiate between good and bad investment opportunities and make choices that enhance their financial well-being.

Other options do not capture the full essence of financial literacy. While investing in high-risk securities may be a part of personal finance, it is not inherently a measure of financial literacy or capability. Similarly, an understanding of government regulations or knowledge of historical financial trends, although beneficial, does not equate to managing one’s own personal finances effectively. Financial literacy is fundamentally about the practical application of financial knowledge in one’s life.