Perspectives : DC Retirement | April 18, 2023

Financial literacy and financial wellness: Like two peas in a pod

Read time: 5 minutes

"Financial literacy and financial wellness go hand in hand,” said Clifford S. Felton, a Vanguard wealth planning researcher and coauthor of Vanguard’s Guide to Financial Wellness. "First, savers need the knowledge, and then they can take steps to apply it."
Got monetary goals? The more that savers know, the greater their chances of reaching those goals—in both the short and long term. That’s according to the 2022 National Financial Capability Study by the FINRA Investor Education Foundation, which found links between higher financial literacy, the ability to make monthly ends meet, and the foresight to create a long-term financial plan.1
Acquiring that know-how is step one in what, for many people, is a lifelong journey toward financial wellness. (Step two is putting that knowledge to work.) Vanguard kicked off April’s Financial Literacy Month by shining a spotlight on our financial wellness guide, which walks savers through a series of small steps that can ultimately make a big difference in achieving their money goals.

Get smarter about money

Money is stressful for most people, but what if part of that stress stems from not knowing where to find the answers to their pressing concerns?2 “Most people go to parents, friends, or the internet for financial information, but in many situations, those may not be the best sources,” Felton said. “Instead, a trusted expert or resource—like our guide or a financial advisor—can help investors take actions that will push them in the direction of their goals.”

Vanguard’s financial wellness guide takes a three-step approach toward helping savers:

  • Take control of finances: Create a budget, maximize employer-matched retirement savings, pay at least the minimum on debt, and pay down high-interest loans.

  • Prepare for the unexpected: Build emergency savings, create safeguards with insurance, and establish key legal documents.

  • Make progress toward goals: Increase retirement savings, save for long-term education and health care costs, invest outside of tax shelters, pay off low-interest debt, and develop a plan for charitable giving.

In short, the guide can be used to help savers boost financial literacy while also helping them figure out which financial steps to take next, no matter where they are in their financial journey.

Put that knowledge to work

Knowledge is power, but that power can’t be exercised until investors put it into motion. “Often, financial wellness improves as financial literacy develops,” Felton said. “That’s because savers learn the steps, start taking action, and then start to see progress toward short- and long-term goals.”

That sentiment is consistent with the findings in the FINRA foundation study. People who score higher on financial literacy measures are more likely to spend less than they earn, to have an emergency cash cushion, and to have calculated their retirement savings needs.

That all points to the critical component of taking action that’s needed to yield results. That’s true when building a budget, paying down debt, or launching a long-term retirement savings strategy. The learning is an important part of the process, but it’s the doing that has true impact.

Boost financial wellness

Once savers get started, the road to financial wellness often involves continuous revision and refinement. “As investors acquire more assets, shift goals, and reprioritize, their financial milestones can act as opportunities for continued learning,” Felton said.

An example: Paying down debt can free up cash for higher-order goals like retirement savings, which can create an opportunity to get familiar with the benefits of available tax-advantaged accounts and perhaps establish the optimal investment order among account types.

In short, financial literacy isn’t a one-and-done stop along an investor’s financial journey. Rather, it’s an ongoing part of the growth process, expanding as needs and goals advance.


  • All investing is subject to risk, including the possible loss of the money you invest.