What is Financial Literacy and Why it’s Important

What is Financial Literacy and Why it’s Important

What is Financial Literacy and Why it’s Important

Financial literacy is nothing but understanding the source of money and how that money can be planned and utilized for the present and future requirements.


In India, the awareness about Financial Literacy is currently at the lower end when compared to other countries. Many people believe in the myth that Financial Planning is a discipline needed only by the wealthier sections of society. 

This article will help you to understand why financial literacy is a need for all- 


  • Financial Literacy-Definition 
  • Financial Literacy- A Need
  • Why Financial Literacy is Important 
  • Scientific overview of the need for Financial Literacy 
  • Financial Literacy Class (e-learning) 


Financial Literacy - Definition


Financial Literacy is the education and understanding of various financial areas like personal finance management, money expenditure and investment.


Financial Literacy focuses on the ability to manage personal finances in an efficient manner, and it includes the knowledge of making appropriate decisions about personal finance such as insurance, investment, real estate, education expenditure, budgeting, retirement and tax planning.


Financial Literacy - A Need


India is moving close to becoming the most populous country in the next 7 years. According to the studies, India is ageing much faster than previously thought and may have nearly 20 per cent population of its population in the age bracket of 60 years and above by 2050 and if we don’t address the need of Financial Literacy now, it can be a major problem. Financial Illiteracy is directly associated with a shortage of money in retirement, this makes financial education a heavy burden on the nation, as the Government’s expenses on financial security increases. 


Today Financial world has evolved, and hence, it’s a necessity for us to work towards the upliftment of Financial Literacy. 


Top 5 points - Why Financial Literacy is Important 


  • In the last twenty years, life expectancy took a huge leap. Average lifespan has increased to 80 years and an increasing number of people living into their 90’s. Whereas there is a continued extinction of guaranteed pension plans and now the people are concerned about outliving their resources
  • The expenses related to health care have doubled over the last few decades resulting in the consumption of one-third of a retiree’s resources
  • The rise in the number of investment schemes and providers over the last couple of decades has created too many choices which have led to confusion and ultimately investment paralysis
  • Looking at the life expectancy, current and future generation will spend an additional 15 years on average caring for family members, so either a child or an ageing parent or both will face financial challenges.
  • College and School tuition fees continue to be extremely high 


Scientific Overview of the Needs for Financial Literacy 


Many studies conducted on the level of financial literacy has shown a strong correlation between the level of financial literacy and a set of behaviours throughout the life cycle. 

For example, a study conducted by Van Rooij, Lusardi, and Alessie, 2011 clearly indicates that individuals with greater numeracy (the ability to understand and work with numbers) and financial literacy are more likely to participate in financial markets and to invest in stocks. Also, a study stated that financially literate individuals can choose mutual funds with lower fees (2). 

Lusardi and Mitchell (2007) have shown that elderly who display high levels of literacy were more likely to plan for retirement and, as a result, accumulate much more wealth. 

Financial Literacy had not only affected the asset side, but it also influences the liability of household balance sheets. A study done by Campbell (2006) has shown that individuals with lower incomes and lower education level are less likely to refinance their mortgages during a period of falling interest rates.

 
Financial Literacy Class (e-learning) 


Power to me In India is providing you with an opportunity to upgrade your level of knowledge and information in terms of Financial Literacy. 

We are here in India to make you understand today’s need for Financial Literacy for future’s benefit. 

Through our online class, we lead you towards the journey of Financial Literacy. Financial Literacy can’t be achieved without personal empowerment. Keeping the need for personal empowerment in mind, we have structured the entire course on it. This course structure will empower you, enlighten you about the need for financial literacy and eventually it will provide you with a deeper understanding of personal finances. Under the Financial Literacy course, we will help you understand the basics and technicalities of financial literacy, financial planning, and Investments. 

If you still have doubt about the need for financial literacy, just think about these questions and answer them silently - 

  • Are you effectively managing your finances? 
  • Do you know basic financial concepts, like compound interest, mutual funds, stocks, credit scores etc? 
  • Are you living a debt-free life?
  • Are you investing well, and saving your tax?
  • Do you have enough savings for the emergency?

If you are not confident about the replies to these questions, you know where you stand. 

To know more about Power to me, you can click here. You can also get in touch with us for any details. For more information and detailed blogs on Personal Empowerment and Financial Literacy, click here




References: 

Van Rooij, M., Lusardi, A., and Alessie, R. 2011. “Financial Literacy and Stock Market Participation.” Journal of Financial Economics 101(2): 449−72.

Hastings, J., Mitchell, O. S., and Chyn, E. 2011. “Fees, Framing, and Financial Literacy in the Choice of Pension Manager.” In Mitchell, O. S., and Lusardi, A., eds., Financial Literacy: Implications for Retirement Security and the Financial Marketplace. Oxford, UK: Oxford University Press.

Lusardi, A., and Mitchell, O. S. 2007. “Baby Boomer Retirement Security: The Role of Planning, Financial Literacy and Housing Wealth.” Journal of Monetary Economics 54: 205−24.

Campbell, J. Y. 2006. “Household Finance.” The Journal of Finance 61: 1553−1604.