Arkansas Foundations of Reading Test (FORT)

What does the term "financial literacy" refer to?

1. The ability to perform mathematical calculations effectively

2. The knowledge and skillset necessary to be an informed consumer and manage finances effectively

3. The understanding of economic theories and principles

4. The ability to read and write financial reports

The correct answer is: The knowledge and skillset necessary to be an informed consumer and manage finances effectively

The term "financial literacy" refers to the knowledge and skillset necessary to be an informed consumer and manage finances effectively. This encompasses a wide range of skills and knowledge necessary for making informed decisions regarding personal finance, including budgeting, saving, investing, and understanding credit. Financial literacy empowers individuals to assess financial products and services, plan for their financial future, and understand the implications of their financial choices in everyday life. This understanding extends beyond basic numbers and calculations, emphasizing the ability to apply knowledge in practical situations, which is critical for navigating the complexities of financial products and services in the modern economy. Whereas other options mention aspects such as mathematical calculations, economic theories, or reading financial documents, they do not capture the broader application of understanding and managing personal finances, which is central to the concept of financial literacy.