Financial Literacy
Financial literacy has been stressed upon ever since the introduction of financial institutions. Banks and government institutions have made finances a bit tricky for a lay man. That is why financial literacy has now become a matter of grave importance.
The term financial literacy means the basic understanding of various financial areas. These areas include personal financial management, money (on the whole) and investing. Financial literacy is the education and understanding of various financial areas including topics related to managing personal finance, money and investing. This topic covers the importance of financial literacy and also includes knowledge of making proper personal finance decisions.
Key components of Financial Literacy
Financial literacy can be classified into knowing of the following important procedures:
- Financial planning
- Compound interest
- Savings techniques
- Time value of money
Financial well being on every individual depends upon how they manage their expenses. Financial literacy is so important that the state has created a Financial Literacy and Education Commission, whose job is to make people aware of dealing with their finances.
Achieving financial literacy
Achieving financial literacy can open many gateways of financial success is a person’s life. Here are some important steps that will help you achieve your goals:
- Learn to create a budget
- Acquire the ability to track spending
- Learn new techniques of paying off debt
- Plan for your retirement.
The Importance of Financial Education
Leaning to deal with your finances will make you self-sufficient. It will also help you gain financial stability because you will have everything under your command. Financial education can help you with many things, a few are listed below:
- Day to day finances will be kept under check
- Helps an individual make their own financial decisions
- Help people develop their own financial road map
- Helps small business owners
- Contributes in economic growth and financial freedom
Financial illiteracy:
If a person is not financially literate, it is highly likely that they will end up falling prey to some one’s scheme. The absence of financial literacy can wreak havoc on a person. People are often seen becoming victims of predatory lending, bad credit scores, high interest rates, bankruptcy and foreclosure.
Financial illiteracy results in owing large amounts of debt. According to the Financial Industry Regulatory Authority, around 63% of the Americans are no literate financially. This means that they lack basic skills such as maintaining a bank account, paying bills on time and making financial decisions for their future. The lack of financial literacy can lead to owing large amounts of debt and making poor financial decisions.