Financial literacy is the ability to use knowledge and skills to make effective and informed money management decisions.

When you have this skill set, you’re able to understand the major financial issues most people face: emergencies, debts, investments and beyond. Financially literate people know their way around a budget, know how to use sinking funds, and know the difference between a 401(k) and a 529 plan. Here are the concepts financially literate consumers have mastered: