Financial literacy is a study and believes of different financial areas. It is the topics related to managing personal finance, money and investing. These topics are focused on the ability to manage personal finance elements in an efficient manner. It also includes the knowledge of making suitable decisions about personal finance, such as insurance, real estate, investing, tax planning, budgeting, retirement and paying for college.
The importance of Financial Education is that it helps individuals become self-sufficient so that they can achieve financial stability. Those who understand the subject should be able to know whether an item is required, whether it is affordable, whether it is an asset or a liability.
This territory demonstrates the behaviors and attitude that a person possesses about money that is used in his daily life. Financial literacy shows you how an individual makes his final decisions in his daily life. It helps a person develop a financial guidebook to identify what he earned at that time, how much he spent and what he owes. Financial literacy also has an effect on small business owners, who always contribute greatly to economic growth and stability of a land.
Financial literacy is a topic that effect people of all ages and all socioeconomic levels. It is a topic that causes many people to become a victim of predatory lending, fraud, high interest rates, subprime mortgages, bankruptcy, potentially resulting in bad credit or foreclosure.
If someone has the lack of financial literacy, it can lead to owing large amounts of debts and making weak financial decisions. For example, the advantages or disadvantages of fixed and variable interest rates are concepts that are easier to understand and to make informed decisions about it if you possess financial literacy skills. There are a lot of people who lack the basic skills to reconcile their bank accounts, pay off debts, pay their bills on time and plan ahead for the future.
The main way to achieve financial literacy includes learning the skills to create a budget, learning the techniques to pay off debts, the ability to track spending and effectively planning for retirement. These steps can also consist of counseling from a financial expert. The things you can learn about the topic involves understanding how money works, creating and achieving financial goals and managing internal and external challenges.
Financial literacy education should also include organizational skills, consumer rights, attention to details, technology and global economics because it can affect the economy of the land.
A lack of financial literacy is not problem but only in emerging or developing in the economy. The level of financial literacy varies according to the education and income levels, but proof shows that the highly educated consumers with high incomes can be just as ignorant about the financial issues other than less-educated, lower-income consumers.
Why is Financial Literacy and Financial Education important?
Financial literacy is very important to help purchaser save enough to support an acceptable income for retirement, at the same time while avoiding a lot of debt that will result to your company ending up into bankruptcy, shortcomings and foreclosures. People with high financial literacy plan for their retirement and in the bottom line usually have double the amount of money from the people who do not plan for retirement beforehand. In contrary, the people with low financial literacy tend to borrow more money, have less wealth and ends up paying for unnecessary fees for different financial products. Especially those with lower financial literacy tend to buy on credit more often, and are usually incapable to pay for their full balance each month which leads to them spending more money on interest. This group of people does not invest much, has a lot of trouble with debt and they would always have a poor understanding of the terms of their mortgages or with their loans.
What is more disturbing is that many consumer believe that they are really financially literate than they actually are in reality but what they do not understand is that they are not as stable as they think they are.
This may seem like a particular person problem but it is wider in nature and it is more effective on the entire population than it was earlier believed by the people. Everyone should always have a look at the financial crisis that is happening around them to be able to understand the impact that it has on the entire economy of a land that arose from the lack of understanding, of mortgaged products that people themselves mortgages because there is no other way for them to provide for themselves and their family.
Financial literacy is an issue with a very broad implication on the economic health of a land and it is also an improvement that can lead the way to a global economy that is very competitive and strong.
If we are to speak about financial education, it is normally identify to the world of investment but day by day it is becoming a very important term in our daily everyday lives.
Regardless of someone’s condition, income, their job or any other analytical problems the need of financial education is becoming very important for a family that is trying to make ends meet on deciding how to balance their budget throughout the week or month. Financial education also comes in handy for when a family decide to purchase a new home, cater for their everyday needs, how to have finance available for the education of those who have children and also make a budget on what is the amount you would be receiving upon the time of your retirement.
The reasons that are making financial literacy and financial education more important:
There are too many options to pick from, for example there are different banks that you could choose from some offers more than the other , various credit unions, brokerage firms that are competing to be the best, so many credit card companies, mortgage companies, there are also financial planners and other types of financial service companies who are all striving for assets and all these different type of companies just becomes a big confusion for the consumer, because they do not know which on to trust or which one seems better than the next one.
What is also making financial literacy important is how the consumers are being asked to choose among different types of investment and savings products. These products that they have now are more refined than the ones they had in the past. They are asking the customers to choose among different types of products that they are offering but they are varying the rates and capability of the products, which makes it hard on the customers to choose because they are not adequately educated to make such decisions.
By deciding on complex financial instruments that has a large range of options, can have a lot of impact on the consumers ability to buy something, finance for an education or to be able to save for retirement, all these are adding to the pressure to make a decision.
Financial education helps you manage your finances and makes you gain control over your money. You should start by understanding what you realistically needs and can afford at that moment and what you might need to trim from your budget and leave it for another time or you can use it but remember to always put it back as soon as you receive and can be able to put it back. Financial education can always help you a way out when you are in debt or before you end up in debt.
Financial education helps you plan for the future, it helps you understand that there are different savings options and how much impact they have on your goals. For if you want to retire someday, financial education will come in handy to help you understand how much money you will need to save before retiring. It will also teach you how to save from your current income and how long or much you will need to save monthly to have enough money to reach your retirement amount. Understanding your finances will also help you to plan for a vacation, it will help you understand on what amount you should save to go to a particular country that you wanted to go.
By understanding financial education it helps you end the debt cycle. Making a budget and to understand where your expenses lies can help you avoid any wasting money on things that are not that important in life and it will also help you avoid debt in the future. You should always understand how your finances function and what makes them stay in a substantial health is all part of financial knowledge to live a life without debt. You will always need money in your future so it is up to you to know how to use it wisely so you can at least have some saved up for the future instead of using it in ways that may only harm you.