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Financial Literacy Can Help Reduce Stress and Improve Overall Happiness

If you think the world of finance is obscure and difficult, you’re not alone. Here, we define the critical elements of financial literacy and the three ways it can help make your life better.

If you think the world of finance is obscure and difficult, you’re not alone. Many people worry they’re making critical mistakes about their money. But becoming financially literate doesn’t have to be hard. The key is to learn the fundamentals of financial literacy and then reinforce them through ongoing, everyday practice. Here, we define the critical elements of financial literacy and the three ways it can help make your life better.

At its core, financial literacy is understanding how to use money responsibly. Being financially literate means you have the knowledge to make good decisions about saving, spending, taxes and investments.

The two concepts that form the basis of financial literacy are cash flow and investments. A well-organized budget helps you keep tabs on your cash flow, essentially how much money comes in and goes out on a regular basis. A financially literate person strives for a positive cash flow, in which expenditures do not exceed income, and commits part of his or her money to investments with the goal of earning a profit.

Being financially literate also means having a solid understanding of the different types of debt. Bad debt represents money owed on depreciating assets, such as what you might typically buy with a credit card. Good debt, on the other hand, represents money owed with the expectation of a benefit. Examples of good debt include student loans and a home mortgage. Financially literate individuals understand how bad debt restricts their finances and limits it in order to build personal savings.

A final trait of financial literacy is the ability to make your own decisions. Those who lack confidence about money may let others make choices for them. Being financially literate means you do your homework, ask viable questions and weigh the viability of an investment before making any financial decision.

How Financial Literacy Helps Improve Your Well-Being

Being smarter about your money can help lead to a happier and healthier life. Here’s three reasons why:

1. Reduces Stress

Work and money remain the top two causes of stress for Americans, according to a 2018 American Psychological Association survey.1  Not only does stress affect your mood and outlook, it can also cause health problems like headaches, chest pain and difficulty sleeping.

Anyone who’s been late on bills or drowning in debt knows how stressful it can be. Getting a handle on your finances means paying back debt, improving your credit and knowing you have enough to pay your monthly expenses. Once you have it under control, you’ll be able to start saving for emergencies and other long-term goals like retirement.

2. Improves Relationships

Finances are a leading cause of friction in relationships, and money fights early on may predict divorce. According to a 2017 survey by Ramsey Solutions, arguments over money are the second leading cause of divorce, behind infidelity.2 Results show that both high levels of debt and a lack of communication are major causes for the stress and anxiety surrounding household finances.

If you and your partner choose to become financially literate together, it can help strengthen your relationship. Once you both get on the same financial page, money may no longer be a reason to fight --and, it can be a path towards investing in your future together.

3. Frees Up Time for Things You Love

Time is money and money is time and becoming financially literate can help give you more of both.

When you’re in control of your money, you won’t need to spend as much time sorting bills or dealing with debt collectors. You might even be able to work fewer hours and eliminate taking on overtime.

That extra time frees you up to do things you enjoy, such as spending time with family, participating in your favorite hobbies or volunteering in your community.

Financial Literacy Pays Off in Dollars and Sense

According to the 2017 Morgan Stanley Investor Pulse Poll, investors who reported being happiest overall also said they are less troubled by financial worries than their peers. They are less concerned about issues like having enough money for retirement or unexpected medical expenses because they are able to practice healthy financial habits more often.3

Happy Investors Tend to Practice Healthy Financial Habits More Often


 Not Very Happy Investors

 Very Happy Investors

Discussing Finances with Their Significant Other



Having a Financial Plan in Place



Meeting Short-Term Goals



Meeting Long-Term Goals



When you improve your financial knowledge, you take better control of your finances, empowering you to make more educated investment decisions and protect your own best interest. This could lead to improved health, better relationships and a greater sense of happiness.

April Is Financial Literacy Month

Getting started is easy. Your employer may already have a Financial Literacy program in place, where you can attend educational seminars or access online educational resources right at your fingertips. As April is Financial Literacy Month, there’s no time like the present to begin to take the necessary steps to improve your financial health and overall well-being.

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