Which of the following best describes financial literacy?

The best description of financial literacy is the understanding of how money works in daily life. This encompasses a range of essential skills and knowledge, including budgeting, saving, managing expenses, understanding credit, and making informed financial decisions. Financial literacy is not limited to theoretical knowledge but emphasizes practical application in everyday situations, allowing individuals to navigate financial systems and utilize resources effectively.

In contrast, predicting market trends accurately focuses more on investment and financial analysis rather than the broader concept of managing personal finances. Having a high income level only does not equate to financial literacy, as individuals can struggle financially regardless of their income if they lack financial management skills. Lastly, solely knowing how to invest in stocks is a narrow view of financial literacy; it is only one aspect of broader financial knowledge that also includes budgeting, debt management, and financial planning. Therefore, understanding how money works in daily life encapsulates the essence of financial literacy.