Financial literacy is important because it provides essential knowledge and skills to manage your personal finances, help to make informed financial decisions, and better prepare for the future.
Are you always tired of keeping up with the expenses while the rich people are getting richer?
It’s because rich people are more financially literate. That’s why they are always prepared for a crisis like Covid-19. Moreover, they can spend thousands of dollars to manage their assets properly. But can you?
The answer is probably negative. So, to better prepare for the future or any crisis like Covid-19, you need to understand Why Is Financial Literacy Important.
However, before jumping into our main topic we need to properly understand what financial literacy is.
Whats Financial Literacy?- Simplified
According to Investopedia,
“Financial literacy is the foundation of your relationship with money, and it is a lifelong journey of learning.”
To simply put it, financial literacy is the knowledge and skill that helps people to better utilize their personal assets as well as make informed financial decisions for lifetime financial security.
Financial literacy also includes the successful completion of important financial tasks like budgeting, investing, borrowing, taxation, and personal financial management.
For example, imagine a person has a $4000 monthly income. If he/she can manage the day-to-day expenses and other expenses properly then he/she can complete the month in less than $4000 without going into any debt. Moreover, if the person is really good at money management then he/she can even save and invest the saved money for the future.
With Covid-19 and rising inflation, better money management skills or financial literacy is a must. Now let’s have a look at Why Is Financial Literacy Important?
Why Is Financial Literacy Important?
Because financial literacy is something that provides essential knowledge and skills to manage personal finances and better prepare for the future.
To fully understand Why Is Financial Literacy Important first we should look at the below statistics
- According to a 2019 survey by CareerBuilder, “More than 78% of American workers are living paycheck to paycheck.”
- Around one-third of Americans aged, between 24-35 have a student loan. The total student debt is about $1.5 trillion.
- The total credit card debt of Americans is estimated to be around $15.24 Trillion. So, on average every US citizen carries $6,194 in credit card debt.
You better be. Moreover, most of these surveys are done pre-covid. So, imagine how alarming the numbers are now. But how did we get here?
One of the many reasons behind this is the lack of financial literacy. Because according to The Financial Industry Regulatory Authority, “Around 66% of Americans are considered Financially Illiterate.”
Furthermore, one of the most common phrases nowadays is “ The Death of the Middle-Class population.” Lack of financial literacy is one of the reasons behind this. But how can financial literacy help you?
Well, financial literacy helps you to better manage your money and better prepare for a crisis or future.
Creating A Monthly Budget
For example, according to estimates, only 18% of the American private-sector jobs offer a pension plan. So, if you don’t start managing your money properly now, you might as well have no retirement fund left by the time you retire. This might sound harsh. But this is a new reality.
However, financial literacy can help you avoid these situations. It can also help you in
Fighting High-Interest Rates
The feds have already indicated an increase in interest rates. This might be better for fighting the rising inflation. But it can also raise mortgages. So, you need to keep up with the costs.
Moreover, financial literacy will also help you compare different credit cards/loans and choose one with low-interest rates. So, paying the credit card fees/loan installments does not become a burden to you.
This is the worst possible time to have financial debt. So, financial literacy also helps you to discover efficient ways to repay your debts. Most preeminently, it helps you to avoid debt and bankruptcy.
Maintaining A Great Credit Score
Financial intelligence helps you to understand your credit score and helps you maintain it properly. So that you can have a great credit score which can help you get lucrative deals on loans and interest rates.
Proper Utilization Of Your Spending
Financial literacy helps you to properly utilize your spending habits. If you can minimize your spending then you can save a lot of bucks. This can help you create a heyday fund. So that you can fight any crisis.
Most importantly, it helps you to make better financial decisions.
These are just a few reasons Why Is Financial Literacy Important. You’ll experience more of it once you start taking steps towards financial literacy. But how to do that?
Tips Towards Financial Literacy
“Money Without Financial Intelligence,
Is Money Soon Gone.”
-Robert Kiyosaki, author, and businessman.
We have already learned Why Is Financial Literacy Important nowadays. But it’s unfortunate that no school teaches financial intelligence. So, you need to take matters into your own hands. Here are a few tips for financial literacy
1. Find Resources
Fortunately for us, currently there are thousands of resources available for improving personal finance skills. Some of them are free while some of them are paid.
So, find resources that are most suitable for you. Like books, audiobooks, podcasts, blogs, and sessions on financial literacy. Then start diving into them according to your preference.
2. Build A Learning Environment
Building a learning environment is crucial. The easiest way to do this is to use your social media accounts and content consumption to your advantage.
You just need to join a few great social media communities on personal finance and subscribe to a few personal finance youtube channels. After that, do some basic engagement in those communities or watch a few videos. Then those social media algorithms will start showing you posts, videos related to financial literacy and you will automatically start to view those. That’s it.
If you follow this method then you will learn without even noticing.
3. Set Up Tiny Goals
Setting up small goals and fulfilling them can accelerate your journey towards financial literacy. Because when you set up small goals and fulfill them then it makes you mentally satisfied and gives you the inspiration to do more.
So, set up small goals that you can easily achieve like reading/hearing a book on budgeting and implementing what you have learned on a small scale within a deadline.
However, while learning from online sources please avoid click baits and always double-check or consult with an expert before implementing anything on personal finance.
These are a few tips on starting your journey towards financial intelligence. If you want to check more then look at our full guidelines on improving financial literacy.
Why is financial literacy important for youth?
Financial literacy is vital for the youth. Because it will help them understand the value of money, help them differentiate between desire and need and most importantly help them make better financial decisions. As a result, it will lead them toward a stable and brighter future.
How will financial literacy allow you to succeed in the future?
Financial literacy leads to a financially stable future. It helps you to live life on a budget, save up for the future, make better investments, and overall financial independence. As a result, you won’t have to struggle in a crisis or in retirement. Moreover, eventually, Financial literacy might lead to a position where you can enjoy luxury.
How is financial literacy used in everyday life?
Financial literacy can completely shape your perspective on personal finance. It helps you to develop good regular spending habits, budget, focus on long-term financial goals, prioritize your needs before desires, and live big on a budget. Eventually, these small regular habits will lead to a less stressful life.
By now you might have understood Why Is Financial Literacy Important in 2022? So, it’s time to start your journey towards financial intelligence.
Financial Literacy is a lifelong journey of learning. So, don’t get impatient at first. Take one step at a time towards financial intelligence and one day you will have a better and more stable financial position than ever.
That’s it for today. Have a great day!