Reviewed by Aug 27, 2020| Updated on
What Is Financial Literacy?
Financial literacy refers to the ability to understand and apply different financial skills effectively, including personal financial management, budgeting, and saving. Financial literacy makes individuals become self-sufficient, so that financial stability can be accomplished.
Understanding Financial Literacy
Financial literacy also requires the experience of financial principles and concepts, such as financial planning, compound interest, debt management, efficient investment strategies, and money-time value. Financial illiteracy can lead to poor financial choices which can have negative effects on an individual's financial well-being.
The key steps to improve financial literacy include: - Learning the skills to create a budget - Ability to track expenses - Learning the strategies to pay off debt - Planning for retirement effectively
Such measures can also include financial specialist counselling. Educating about finances involves understanding how money works, developing and achieving financial goals, and handling internal and external financial challenges.
Benefits of Financial Literacy
Financial literacy focuses on the ability to manage personal finance effectively, which requires experience of making appropriate personal finance choices, such as savings, insurance, real estate, college payments, budgeting, retirement and tax planning.
Those who understand finances should be able to answer questions concerning transactions, such as whether an item is required, whether it is accessible, and whether it is an asset or a liability.
This field illustrates a person's habits and perceptions towards money related to his or her daily life. The financial literacy demonstrates how an adult makes financial decisions. This expertise will help an individual build a financial road map to define their income, their expenses, and their liabilities. This subject also affects small business owners, who contribute significantly to economic growth and stability.
The analphabetism in financial matters affects both ages and socioeconomic classes. Financial analphabetism leads many borrowers to become victims of predatory loans, subprime mortgages, fraud, and high interest rates, potentially leading to bad loans, bankruptcies, or foreclosures.