Importance of Financial Literacy
An Introduction to Financial Literacy
We go to schools, colleges, universities to complete our educated and start earning our livelihood. We take up jobs, practise professions or start our own businesses so that we can earn money to make our living. But which of these institutions make us capable of managing our own hard-earned money? Probably a very few of them.
Our ability to effectively manage our money by drawing systematic budgets, paying off our debts, making buying and selling decisions and ultimately becoming financially self-sustainable is known as financial literacy.
Financial literacy is knowing the basic financial management principles and applying them in our day-to-day life.
Financial Literacy – What does it Involve?
From simple practices like keeping a track of our expenses and understanding the need to spend money if we like a product to striking a balance between the value of time saved and money lost, paying our taxes and filing of tax returns, finalizing the property deals, etc – everything becomes a part of financial literacy.
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As human beings, we are not expected to know the nitty-gritty of financial management. But managing our own money in a way that it does not affect us and our family in a negative way is important. We certainly do not want to end up having a day with no money at hand and hunger in our stomach.
Why is Financial Literacy so Important?
Financial literacy can enable an individual to build up a budgetary guide to distinguish what he buys, what he spends, and what he owes. This subject additionally influences entrepreneurs, who incredibly add to financial development and strength of our economy.
Financial literacy helps people in becoming independent and self-sufficient. It empowers you with basic knowledge of investment options, financial markets, capital budgeting, etc.
Understanding your money mitigates the danger of facing a fraud-like situation. A few strategies are anything but difficult to accept, particularly when they’re originating from somebody who is by all accounts learned and planned. Basic knowledge of financial literacy will help people with foreseeing the risks and argue/justify with anyone learned and well-informed.
What should you read on / get informed about in Financial Literacy?
- Budgeting and techniques of budgeting
- Direct and indirect taxation system
- Direct tax slabs
- Income and expense tracking
- Loans and debt – EMI management
- Interest rate systems: fixed versus floating
- Business and organisational transaction studies
- Elementary Book-keeping and Accountancy
- Cash in-flow and out-flow Statements
- Investment & personal finance management
- Asset management:
- Business negotiation skills and techniques
- Make or buy decision-making
- Financial markets
- Capital structure – owner’s funds and borrowed funds
- Fundamentals of Risk Management
- Microeconomics and Macroeconomics fundamentals
While there are various media to learn about financial literacy, we recommend that you join a short-term, weekend programme which helps you get financially literate.
FAQs
Financial literacy helps people in becoming independent and self-sufficient. It empowers you with basic knowledge of investment options, financial markets, capital budgeting, etc. Understanding your money mitigates the danger of facing a fraud-like situation.
What is financial literacy and why is it important for kids? ›
By understanding the value of money, learning to make responsible spending decisions, and developing savings habits, kids can avoid the pitfalls of debt and financial mismanagement that often plague adults. The benefits of early financial education extend far beyond simply managing money.
What is financial literacy in your own words? ›
What Is Financial Literacy? Financial literacy is the ability to understand and effectively use various financial skills, including personal financial management, budgeting, and investing. When you are financially literate, you have the essential foundation for a smart relationship with money.
Why is financial literacy important to you as a student? ›
When you understand how to save, invest, and make wise financial choices, your money can work for you, potentially leading to increased assets and financial security. Making financially responsible decisions should become an integral part of your daily life, influencing how you manage your income, expenses, and debt.
Why is financial literacy important to your future? ›
Financial literacy is an indispensable skill in today's world. Beyond financial health, it empowers individuals, reduces stress, and fosters a sense of security. It involves budgeting, savings, investments, retirement planning, debt and risk management, and understanding financial products and concepts.
What is financial literacy and its benefits? ›
Financial literacy focuses on the ability to manage personal finance effectively, which requires experience of making appropriate personal finance choices, such as savings, insurance, real estate, college payments, budgeting, retirement and tax planning.
Why should students learn about money? ›
Financial literacy empowers students to take control of their financial futures from an early age. By understanding concepts such as budgeting, saving, investing, and managing debt, students develop the confidence to make informed financial decisions that align with their goals and values.
Why should kids have money? ›
But giving them money and having them learn first-hand on how to save and when to spend will help them learn faster. Teaches the Value of Money. If you require your child to do chores to get an allowance, then it will teach them that money is earned from hard work. Learn to Set Goals.
Should you show your kids your finances? ›
But addressing money and family finances with our children can teach skills that will help them be financially competent adults. So, as uncomfortable as it may feel to talk money with our kids, it's worth it when we view it as part of nurturing critical skills for future self-sufficiency.
How does financial literacy affect students? ›
Financial literacy helps you manage your money wisely, make sound financial decisions, and achieve financial stability in life. On top of this, financial literacy also helps you get through the unexpected moments in life – like a medical emergency or a sudden loss of employment.
Financial literacy gives individuals the life skills that yield financial goal achievement, wealth growth, and overall well-being and happiness. By developing financial literacy skills, you empower yourself, securing a financial future through informed financial decisions.
What is financial literacy in a sentence? ›
the ability to understand basic principles of business and finance: Greater financial literacy will protect people from predatory lending.
Why is financial literacy important for kids? ›
Financial literacy for kids will help build their credit by understanding how to generate a positive history. This will help them get approved for a loan or credit card and pay down debt faster.
How does financial literacy empower students? ›
The Role of Financial Literacy Programs
Financial literacy encompasses critical skills like budgeting, debt management, investing, and understanding financial products. Having a deep understanding of these concepts, students can navigate financial challenges and achieve their long-term goals.
How to teach financial literacy to kids? ›
When they're little
- Introduce the value of money.
- Emphasize saving.
- Introduce them to investing.
- Encourage a summer job.
- Introduce them to credit.
- Consider a Roth IRA.
- Help them set a budget.
- Encourage them to stay invested.
“If you don't understand the language of money, and you don't have a bank account, then you're just an economic slave.” “The widespread deficit in financial literacy has raised a good deal of concern among government agencies, policymakers, and leaders in the community and business sectors.
Does financial literacy matter? ›
Financial literacy enables individuals to make informed decisions, manage resources, and contribute to economic growth. On the contrary, financial ignorance perpetuates egregious levels of poverty and inequality. It limits access to opportunities, traps people in debt, and widens wealth disparities between countries.”
Why is financial literacy good for the economy? ›
Exactly, Financial literacy is a valuable skill that enables individuals to navigate the complexities of the modern economy, make informed decisions, and contribute to their own financial well-being as well as the overall economic stability.
What are the advantages and disadvantages of financial literacy? ›
In conclusion, financial literacy has both its advantages and disadvantages. On the one hand, being financially literate can help individuals make more informed decisions with their money and avoid debt. On the other hand, financial literacy can also lead to people becoming more materialistic and obsessed with money.
