Financial Literacy, you need it, I need it, everyone needs it. The bitter truth is that you may not understand your financial wellbeing, and how most actions can lead to financial ruin.
You are struggling with savings and investments is that you do not have financial literacy. Do you have any idea what interest, compounding, inflation means? What about diversification, and bond prices?
Debts, a sign of ills around financial literacy
Credit cards have changed a lot of things, consumption habits have skyrocketed because of the changes in financial products. An easy way to accumulate debts is having the multiple choice of shopping online for many things with extended credit.
Financial institutions especially banks and credit cards companies are constantly coming up with new credit opportunities. Since consumers are not properly educated, they fall into financial troubles.
Financial literacy, a key to managing your accounts
Financial Planning is a long-term endeavor, so you should improve your financial knowledge daily, while you keep an eye on the future. Since you are the one managing your financial accounts, you need to have financial literacy.
Do you know what financial knowledge is?
Financial Literacy means you have management knowledge of your finances, credit, and debts, so you can make financially responsible decisions. When you know how a checking account works that’s financial literacy. When you know what it means to use a credit card and still avoid debts, that’s financial literacy.
When you have to make the budget decisions, home-buying decisions, pay for your children’s education, or save up for retirement, financial literacy will have a role to play.
No matter where you are, whether you are in a developed, or developing country, you should have a good grasp of financial principles that helps manage risks and pitfalls.
Anyone can be ignorant about Financial literacy whether they are educated or less educated. This is because a lot of people find financial education and decision-making stressful and difficult.
401k changed everything
These people find financial decisions making difficult and stressful (especially for the employed) because in the past they didn’t have to shoulder any of these decisions.
They had to depend on pension plans which took away their need to be engaged or learn about their finances. The companies had to take responsibility for all the financial records and not the individuals. Today, they have to be a part of everything. They begin to be the ones deciding how much to invest, the example is the 401(k) plans.
Again, you have to learn to choose between various investment options across the financial market. They have to learn the sophisticated thinking and calculations that go into buying a house, saving for retirement, funding a kid’s education, etc. With the different financial institutions available for consumers to choose from, the task becomes more daunting.
Another factor is the advent of technology, which came with a wide range of changes, electronic trading, for instance, makes the following a financial road map difficult and conflicting.
Why is financial literacy important?
Even with all the changes, financial literacy is still very much important, in the sense that, you have to;
- Learn to save a lot(adequate amounts) for retirement and avoid debts at the same time.
- Learn to save for financial crisis
- Learn to save for investment purposes
- Learn to live within allocated budgets to avoid impulsive spending and save more in the process.
- Learn about taxes on your properties and possible ways to lessen the burdens of taxes on these properties
- Learn about insurance policies and why you need them.
- Learn to choose the right beneficiaries for your assets.