4 CHAPTER Check Your Financial Literacy IQ Before you begin the chapter, see what you already know about financial literacy by taking the chapter pretest. If you do not have a smartphone, visit the G-W Learning companion website. G-W Learning companion website: www.g-wlearning.com Financial Literacy Basics One of the most important requirements for making personal finance decisions is knowing yourself. Financially capable individuals are well aware of the differences between needs and wants. Being financially capable means having the ability to understand basic topics related to finance, such as wisely making, spending, and saving money. Values, ethics, and goals lie beneath your everyday decisions and overall behavior. Good management involves using resources (what you have) to reach goals (what you want). Economic decision-making tools include cost-benefit analysis and marginal analysis. Common sense is a decision-making tool as well. It reminds you to live within your means so you can enjoy financial security now and in the future. Making the best use of resources calls for planning, acting on your plan, and evaluating the results. Focus on Finance Financial Goals Setting financial goals is an important step in creating financial independence. Without goals, you may find yourself spending money but not achieving the things that are most important to your well-being. Prioritizing your needs and wants, as well as your values, can help you: • create a plan for independence • handle your income responsibly • spend less than you make • borrow no more than you can repay and • live within your means. The sooner you put a plan in place, the sooner you can start making wise decisions and be on the road to financial independence and security. 1