Financial Literacy is a convergence of finance, credit and debt management. It covers a vast area of our lives such as understanding how to check the bank accounts, what it means to use a credit card and how to avoid falling in debt. It impacts the daily issues an average family makes when trying to balance a budget, buy a home, fund the children’s education and ensure an income at retirement.
Financial literacy is important because it equips us with the knowledge and skills, we need to manage money effectively. Without it, our financial decisions and the actions we take—or don’t take—lack a solid foundation for success
If people truly understand the way that financial systems work at an early age, or even later on in life—if they’ve made poor decisions but learn how they can go back and fix them and start planning for the future—they can then encompass that and take the steps to make a better life for themselves.
We have to understand that financial literacy is not only a problem in emerging or developing economies, many consumers in advanced economies has also failed to demonstrate a strong grasp of financial principles in order to understand and negotiate the financial landscape, managing risk effectively and to avoid financial pitfalls.
Even developed nations like Australia, Germany and USA are faced with population who do not understand financial basics.
Yes the level of financial literacy varies according to education and income levels, but there are evidence to show that highly educated consumers with high incomes can be as ignorant about financial issues as the less-educated working class people, the issues with working class people is that when they lose they could hardly recover.
Although there are many people who consistently fall in wrong direction they are still hesitant to learn, no time is one common excuse people give to avoid the effort and when it comes to investment most consumers are hoping to give their money to someone and let them handle their investment having their eyes only on the profit.
Financial Literacy helps people understand that in any business or investment profit and loss are unavoidable factor, thus the art to be successful is to know how to minimize the losses and maximizing the profit.
People ask us why financial literacy is important now even with the availability of internet where anyone can google anything and know about it, well below are some reasons why: -
1. Individual are involved in more financial decision than before, for example retirement fund, usually it will be covered by pensions but now individual is opted to plan them much earlier.
2. Complex options in investment and savings products
3. Lack of government aid
4. Longer Life Span
5. Changing Environment
6. Too Many choices
There are many websites and applications that offers a vast knowledge for users on how to manage their money and users/consumers can always refer to them in the event of doubt.