What is Financial Literacy? Why is it important? Simple beginner's guide!

Many of us have come across this term several times but never really knew what it is. Our schools never taught us what financial literacy means or what is being like financially literate despite financial literacy being a very important component of our lives.

Financial Literacy is not only for people who are interested in finance but for everyone who wants to make MONEY and wishes to be financially FREE. 

In this article you will learn why and how to be financially literate.  

Introduction 

FINANCIAL LITERACY IS DEFINED AS THE POSSESSION OF FINANCIAL SKILLS AND KNOWLEDGE THAT ALLOW FOR INFORMED AND EFFECTIVE MONEY MANAGEMENT. In other words, being financially literate means having the ability to make healthy financial decisions regarding debt, credit, saving, investing, budgeting and spending. 

 

Schools overlook the importance of financial education 

The school from which I graduated never ever taught us anything about financial literacy and believe me it should have been a priority.  

Many different factors play in for why schools don't prioritize financial education. First, it is a state decision to manage which subjects are being taught in the school. Second, the teachers might not be qualified enough to teach students about it. Third, it simply isn't considered a priority. 

Personal finance is something that should be added to the school curriculum because everyone in life will eventually earn money and it is important to know how to handle it.  

Why do we go to school to learn about science, math, history and other subjects? The answer is to empower us in those respective areas. Similarly, education about money should be given the same priority as other disciplines. Young people need to be empowered about money and how it works. 

Why is it important?

Statistics indicate that young people who never received proper education on finances end up as irresponsible adults, particularly on financial matters. They don’t know how to invest, they can’t save enough money to buy a home, and often have very poor credit scores. 

 

Financial literacy is important because it equips one with the knowledge and skill to manage money effectively. Without financial literacy, the actions and decisions one make or do not make with respect to savings and investments would lack a strong foundation. 

Financial literacy helps in understanding financial concepts better and enables one to manage their finances efficiently. Furthermore, it helps in effective money management, making financial decisions, and achieving financial stability. 

Money makes problems more manageable and less expensive to solve. You need to understand money to make smart decisions that will help you in life, not hurt you. 

Components of Financial Literacy 

As beginners we do not need to go in depth about all the components. Here are the four key concepts to work on in order to improve your financial literacy. Mastering these aspects won't always be easy. However, with a little bit of practice, they will benefit you for a lifetime. 

1. Budgeting

CREATING AND MAINTAING a budget is one of the most basic aspects of staying on top of your finance. It doesn’t matter if math isn’t your strong suit - thanks to these user-friendly tools, everyone can get help with keeping their finances on track. 

Without following a budget, it’s difficult to hold yourself accountable on where your money is coming from and what it’s going toward. Mastering the basics of budgeting is where any financial novice should begin. 

Use the 50/30/20 method or 70/20/10 method of budgeting but start. Here is how you can create and start budgeting. 

2. Saving and Investing 

LEARNING TO SAVE EARLY on can help you gain the knowledge, practice and set of skills you’ll utilize throughout your entire life 

The future is always uncertain and you can never know which unexpected expenditure will come your way. 

Additionally, saving money can help you avoid debt, reduce your financial stress, and provide you with a greater sense of financial freedom. Saving money takes discipline and a certain amount of sacrifice. With the help of financial literacy resources, you can develop better saving habits.   

Saving and investing are mutually connected. By setting aside money you will prevent financial setbacks from overtaking and give you peace of mind. Investing money is a good management tool because it leaves you with more money in the bank and with another stream of income. Learn and start investing. 

3. Borrowing

BORROWING MONEY IS NOT BAD. Taking loan is not bad. Not understanding the interest rates and not repaying it on time is bad. You need to maintain a healthy credit score and for that you need to be particular about your repayments.

  

Compare loans and tax rates.  Not only it will considerably help you to save more but will clear out any doubts that you have about taking as little as loan and paying so much in the process of rectifying the amount for years to come. 

Understanding the ins and outs of interest can actually affect your financing in a much subtle way; that is why it is a much more significant concept to master so early in life. 

4. Protect 

Financial literacy is NOT ONLY ABOUT BEING INFORMED AND MAKING INFORMED DECISIONS solely based on the prospect of your understanding of money. But it also corresponds to the idea of identifying the threats that linger around your financial resources and being duly informed of these threats. 

 
Protect the money you have made. Regularly check your bank statements and accounts for mistakes or suspicious activity. Keep your passwords and documents secure to eliminate scams and theft.

Limiting the amount of information shared online as well as protecting your passwords can eagerly help you to stay secure and more anonymous while shopping online. It is better to safeguard your finances as much and keenly as you can in order to avoid these lingering threats and to focus on financial growth. Protect. 

How can you start? 

There are several ways in which you can start or learn financial literacy but you need to just START. Below I am listing some ways in which I started

1. Financial Podcasts. 

Listening to Financial podcasts will help you develop more interest in finance and will help you learn. Listening to more and more podcasts will also help you develop a better mind set. 

You may have a busy schedule and that's why podcasts are best for you And there are many great ones you can listen to on your way to work, doing chores or even while working. 

Just take out ten minutes a day and start! This is free education that you can listen to. Here are podcasts for beginners and here are some advance podcasts. 

2. Books 

Reading is very useful and a productive activity. Books are something that can provide in depth knowledge about literally anything. Start by 10 pages every day and invest your time and money in books. 

Here are some beginners books that you can start with. If you don't want to buy them you can go online and search for e-books as well. 

3. Take free courses online 

Online you can find numerous FREE courses and modules that can help you build and grow your knowledge about personal finance.  This is if you feel if you want to step further or need the structure to learn. 

These courses also provide e-certificates that can be very helpful to grow your profile as well. 

So what are you waiting for? 

FAQs

1. What is financial literacy? 

It is basically means to learn effective ways to handle your money.

2. I don't have money to invest. What to do? How to save?

You can start by cutting down your miscellaneous expenditure. You went to have a meal that costs you say Rs.300. You can save that money and start by that. Prioritize your NEEDS and WANTS. 

3. Is it important for me? I'm not an adult yet. I don't earn. 

It doesn't matter if you earn money or not you NEED to know how to manage it. One day you will be earning and it will be benefit you a lot if you know how to manage it. Don't wait for the right time, NOW is the time. 

4. Should I invest?

YES. Start investing your money. Start by investing it in a mutual fund. Investing will help you develop a passive stream of income. You can take the advantage of compounding and grow your money.  Warren Buffet has 92 streams of income and all the other billionaires have multiple streams of income. Start finding ways to create income streams and investing is one very easy and simple way.

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