Importance of financial literacy

In today’s world where people are starting to become oblivious of the difference between ‘need’ and ‘want’, there is an inevitable compulsion to have a complete knowledge of how to meet our ‘wants’ and not just our ‘needs’, which in turn has widened the horizons of the definition of Financial Literacy.

Earlier Financial Literacy could have been simply explained by saying that it is a concept where one’s basic needs can be met with simple planning, saving, and keeping track of the expenditure. But why settle for less when there is abundance of opportunities to achieve more than just meeting the basic needs. This is where the definition of financial literacy got amplified.

Financial literacy now simply putis having an understanding of the financial resources in hand, how they work, how to utilize them to extract the optimum benefits but with having a clear picture of the terms such as budgets, time value of money, investments, credit rating and so on. From big businesses to small businesses, whether it is a local vendor, student, or a housewife, financial literacy is for all. In fact, in a study conducted to understand the reason for sick businesses, it was concluded that financial mismanagement was the reason for failure of almost 75% of such businesses. Financial literacy is the responsibility for all.

Financial literacy should be established at grass root levels which is why, United States has acknowledged the fact that learning the finance lingo is similar to learning a new language and has introduced various finance related subjects at school levels. Various countries across the globe have started structured programs to build within its population the importance of being financially literate in order to achieve self-growth for the individuals along with the growth of the economy of their country.

Let’s talk cricket, it’s much easier to learn the game by playing it rather than watching it on TV. Similarly, when one tries to be financially literate, one must not be afraid to get into the game. The areas of finance where one needs to gain knowledge is very subjective. For instance, a local vendor or a self-employed cab driver might want to know the sources of fund with low rates of interest so as to avoid loan sharks. A house wife on the other hand might want to know the various options of investment for as to expand her savings and so on.

One is never savvy enough when it comes to financial knowledge. It’s a learning every single day. A few sources of such learning are as follows:

• Social media
• Lending an ear to what others have to say about their opinions on financial literacy, TED talks would be one such example.
• Finance blogs
• Stock market related news.
• And ofcourse, involving oneself by investing which would result in a learning experience.

Picture an employee having a fixed salary, he could easily plan his monthly salary divided into his expenditure and savings where in his savings sit ideally in his bank account. Whereas, a financially literate person would plan to invest his savings in a way that it grows which would facilitate the crossing of the border between his wants and needs with ease.

Investments play a key role when it comes to putting the knowledge of finance in our day to day lives. One must always look out for better investment opportunities as time and tide waits for none. A financially literate person would argue that there is no greater sin than keeping your funds idle. It’s safe to say that one would always feel assured knowing that they are making money even while they are sleeping. Like they say, ‘Money never sleeps’, and that’s because there’s always a market open somewhere since not everyone is in the same time zone. The modes of investments have evolved drastically. One can now sit on his couch eating fries and invest in fixed deposits online by the tip of their fingers as compared to personally visiting the post office or a bank to open a fixed deposit account.

Financial literacy can now be also termed as proper management of finances, it’s not just about investment but also about expenditure within budgets, analysis of the right sources of funds and various other aspects. Students and various middle class employees face the primary enigma to spend within their fixed budget. Apps like Spending Tracker help in keeping track of the expenditure, although, one can always go old style and maintain an excel spreadsheet or a note book to keep track of their expenditure. Startups or small scale vendors are always on the hunt forcheap sources for funds which would require gaining knowledge in areas such as bridge financing, interest free loans, etc.

In this fast growing world where everything is revolving around money and all anybody can think of is to get ahead of others in order to achieve financial stability, having a clear knowledge of where you stand in regards of your finances would definitely get you long way towards financial stability. One cannot simply afford to be a financially illiterate person.

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