PREPARING FOR TOMORROW: WHY FINANCIAL LITERACY IS IMPORTANT?
Financial literacy helps us to understand how to maintain and use our money effectively. The integral part of earning is how well we can use and invest our income. Financial literacy points towards the ability to maintain and invest our income using our financial skills.
Our awareness of the financial sphere helps us to grow and manage our resources. This not only directs at meeting our expenses but also investing, saving, debt repayment etc. financial literacy is an important life skill that aims at building an idea on where and how the money can be used to grow and manage it. The concept includes investing, budgeting, loans and interests, credit management, etc. These management ideas would in turn help you in retirement, education, financial emergencies and keep you supported at any time. To acquire financial management skills one must understand the basic concepts of money value, annualized return and compound interest. Understanding the basics would lead to applying it appropriately.
These management skills are given priority as it enhances the lifestyle of the individual. Once they start saving and investing their income, a financial discipline will be maintained in their life. Managing debts and meeting the requirements on a regular basis would give financial stability to the individual and protect them from financial frauds. The unawareness of these skills is known as Financial illiteracy. This may lead to uneven budgets, poor credit score, having higher expenses than income and stepping foot on to financial frauds. The skills are however a necessity to build and support your life and to maintain a firm financial base.
Debt management is an important part of this life sill. The trick lies in differentiating good and
bad debt. Debt is something that is created by borrowing money and using it, in the case of credit
cards and loans. Good debt is utilised for buying essential things like a house, to meet educational or health expenses, etc. Bad debt is when we focus our income on luxury rather than necessity. This usually arises in the modern world where trends and lifestyles are set by others. More individuals are prone to get influenced by others' lifestyles and try to absorb the same. This scenario expects them to spend more than they earn. We as financially responsible individuals must learn to spend and save efficiently and live according to our needs. Their wallet should not decide on our expenses.
Once we know how to spend, we must learn how to save from the rest. The key element in saving is to keep track of our expenses. Saving promises a secure future and a safe present at the same time. The savings can be used for educational purposes, repaying loans at one go, and even provide proper retirement savings.
Investing is another aspect of saving for the future. This means putting money over an avenue that could promise you returns over time. Investments are an additional source of income and add to your wealth. The knowledge of how to divert your money to useful resources is essential. Financially sound builds you a secure present and uncompromised future, seeking to ensure the well-being of the individual in various spheres.
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