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 in your own words? ›
Financial literacy refers to the ability to understand and apply different financial skills effectively, including personal financial management, budgeting, and saving.
What is financial literacy and why is it important for kids? ›
In the complex financial landscape, it's essential to prioritize financial literacy for kids. It empowers individuals to make informed financial decisions, manage resources effectively, and achieve long-term financial goals. And the journey towards financial literacy begins early, during childhood.
Why is financial literacy important to you as a student? ›
Financial literacy equips students with essential life skills, enabling them to make well-informed financial decisions and effectively manage their money throughout their lives.
What are the 5 key components of financial literacy? ›
The U.S. FLEC highlights five principles as the building blocks of financial literacy, known as the MyMoney Five.
- EARN.
- SPEND.
- SAVE & INVEST.
- BORROW.
- PROTECT.
Tips for Teaching Kids About Financial Literacy
- Make it Fun. ...
- Be a Good Role Model. ...
- Discuss Your Spending and Saving Habits. ...
- Give Them an Allowance. ...
- Talk About What Money Does. ...
- Let Them Work. ...
- Encourage Saving. ...
- Emphasize the Importance of College.
Financial literacy is the ability to understand and effectively use various financial skills, including personal financial management, budgeting, and investing.
How does financial literacy affect students? ›
Prepares them for financial independence:
Financial literacy prepares students for financial independence by teaching them how to budget, save, and invest their money. This helps them make informed decisions about their finances and avoid getting into debt.
What is another word for financial literacy for students? ›
Financial literacy, also referred to as financial capability, means having the capacity, based on knowledge, skills and access, to manage your financial resources effectively.
Why is it important to teach kids about finances? ›
Teaching kids about saving money and budgeting will help them avoid debt and financial problems. Helping them understand money will help them develop essential life skills like problem-solving, decision-making, and critical thinking.
Students learn wise debt management practices and avoid expensive borrowing behaviors. They also explore savings options like savings accounts, money market, and Certificates of Deposit. Students learn what a loan is and why it is used to finance purchases.
Is financial literacy taught in schools? ›
What you need to know: California is ensuring that all high school students are taught personal financial literacy before graduating after an agreement between state leadership and NGPF Mission 2030, an affiliate of Next Gen Personal Finance was reached.
What is a famous quote about financial literacy? ›
Harv Eker. “The number one problem in today's generation and economy is the lack of financial literacy.”
How to be financially literate as a student? ›
- 13 Ways to Improve Your Financial Literacy in College. Spread the Knowledge. ...
- Start reading financial materials. ...
- Sign up for a class. ...
- Create a community of accountability. ...
- Understand credit scores. ...
- Refocus your social media. ...
- Update (or create) your budget. ...
- Understand and control your debt.
Financial literacy is a set of skills and knowledge that allows you to make informed decisions about managing your money and financial resources. It involves understanding earning, budgeting, loans, borrowing, planned spending, and investments.
What is your understanding of financial literacy? ›
Financial literacy is the ability to understand and make use of a variety of financial skills, including personal financial management, budgeting, and investing.
What are the four pillars of financial literacy? ›
Financial literacy is having a basic grasp of money matters and its four fundamental pillars: debt, budgeting, saving, and investing. It's understanding how to build wealth throughout one's life by leveraging the power of these pillars.
