Financial Literacy

Financial literacy means knowledge of finance which in simple words understanding the value of money and its management. Just possession of knowledge does not mean that you are financially literate unless you manage the money in the most effective manner. Proper management of money entails well-informed financial decisions.

In this world, where frequent changes are taking place, financial vibrancy is on the increase, newer and newer financial products and services are being announced almost at the drop of hat, in such a situation, it becomes necessary for everyone to keep him/her updated and be financially literate, so that he/she is aware about the pros and cons of every decision that is going to be taken. It will also help him/her to be vigilant, so that one does not get into any fraudulent trap. 

Proper financial knowledge with timely updation is the key to be successful in life. Management of Personal finance therefore becomes important so that wrong decisions can be avoided. Financial literacy enables an individual to plan the finances with regard to Savings, Child education, Insurances of Life/family, vehicle, medical and home. It also helps in decisions, when one looks for Financing or borrowing money for some reason or may be refinancing (if there is already a loan is outstanding), Retirement planning, Housing and of course the tax planning. Thus the main features of financial literacy is to learn and develop the skill of making the financial budget, execute the planned budget, review it from time to time with and if required change whatever is needed and implement the changes. In order to be a good financial planner and implementer it is necessary that one always be open to learning, no matter how knowledgeable he is, knowledge updation in always required.

Financial knowledge enables an individual to understand the importance of money its application and management. In-depth knowledge of money management helps the best possible usage and good return on the investments. Good management works even when one is not attending to it or may be even sleeping. To make most from money invested/saved it is important to set your financial goals keeping a proper balance between your inflow and outflow.

Why Financial Literacy?

 Let us start the other way round i.e. what may happen, if there is no or little financial literacy exists. It has been observed/experienced that little/ negligible literacy leads to all sorts of problems that may multiply. This will definitely have its ill effects among all sections of people. Illiteracy may create problems right from start i.e. earning to spending to keeping a balance between the two. This may further lead to unnecessary borrowings and ultimately end up with mortgaging assets etc. Illiteracy  may lead you tp become a victim of fraud or may get cheated by paying higher interest on borrowed money. Thus Financial illiteracy may lead any or all kinds of financial problems.

On the other hand, financial literacy gives a kind of self-confidence. One feels confident in handling whatever work comes to him; he feels a sense of financial stability. He does not seek advice for everything rather he is in a position to give advice to people who need it.

Financial Literacy helps everyone to take care of the following:

1.      Budgeting – covering both Income & Expenses 

2.      Saving (Confusion can be handled with literacy)

3.      Management - Credit and Debt

4.      Insurance – Life, Medical, Vehicle & Home

5.      Investment – both short and long term

6.      Retirement Planning

7.      Make best use of Govt. schemes being announced from time to time

8.      Avoid Frauds or how to Protect oneself

9.      How to handle problem whether financial or otherwise

Budgeting – means planning how and where to spend the money earned/received. It covers both Income & Expenses for the ensuing period. It may be week, fortnight, month or even a year. There a proper budget can be easily made if the person had good understanding of finance. He may also keep adequate amount for any kind of emergency known as contingency fund.

Saving – means money earned has been set aside for some future expense or may be for investment for long term , benefit of this investment will not be available in immediate future. Some people don’t believe in saving, but think for a moment, if there is no saving what will happen when there is an emergency and an urgent need of money occurs. Financial literacy educates the individual about saving and best possible ways to save, so that you get best possible returns.

Management – Financial management teaches an individual the management of money. Ow to best utilise your money , so that you are in a position to take care of all the expenses and make adequate saving for future. Financial Literacy helps you to develop organising skills be it your small or big expenses that do occur from time to time in one’s life. With necessary skill and management learnings one can take care of any eventuality.

Insurance – Financial literacy educates a person regarding important of Insurance. It helps understand the individual , how to manage the risks if and when they occur. Insurance is a way of guarding yourself against any kind of unfortunate happenings that may occur at any point of time during course of the insurance period.

Insurance comes for the rescue of the individual and takes care of your immediate and my heavy expense at that point of time. Insurance must be taken in all the following applicable areas:

• Life Insurance
• Health/Medical Insurance
• Vehicle Insurance
• Home Insurance

Investment – Like saving, investment is equally important. It may be for short term or long term. Depending on the need one can decide, how much, where and for what period the investment. The investment comes handy when a heavy expense is to be made e.g. Higher education of children their marriage or buying a house etc. Financial literacy will help you decide which are the best instruments for investment , so that he is able to achieve his goal.

Retirement Planning – Everybody has to retire from his active working life someday which is known as retirement life. How big or small it will be, nobody knows, but if the planning is good one can continue and maintain his life style as it used to be. Lack of knowledge or not taking timely action may lead to problems in this stage of life , which may hurt the individual, therefore retirement planning is necessary to have a comfortable life even after retirement.

Make best use of Govt. schemes being announced from time to time – Every Government keeps on announcing schemes for the benefit/welfare of its citizens. Financial literacy enables the people to take note of it , understand it properly and take necessary action. It may relate to any of financial/personal decisions e.g. banking, savings, insurances, investments, housing, tax implications etc.

Avoid Frauds- Financial literacy educates everybody to understand the possibility of fraud in the deal and with your knowledge of finance you easily avoid to fall into that trap and save yourself. It is well known that frauds of all types and happening all across the world and with Internet, there is a huge increase in frauds, so if you have the necessary knowledge and of course the wisdom, you will never get trapped in such fraudulent initiatives.

Problem Handling – The confidence that financial literacy provides, definitely boosts the individual’s morale and enables him to take care of any problem be it finance related or otherwise. Problems, issues are part of life and keep coming from time to time, so with adequate knowledge not only of finance but knowledge in general can easily be tackled. 

Thus one can easily understand the importance of finance in one’s life. Moreover with today’s vibrant environment, it is essential that one must study/learn finance / money management along with other learning streams to lead a comfortable life.