What is Financial Literacy?

What is Financial Literacy?

Saving money is an essential part of having a safe and secure future. But for that security, you need to make smart decisions with your money. But since the majority of people do not possess the knowledge to make prudent and wise financial decisions, financial literacy helps an individual to assess his savings, earning on savings, expenses, credit, risk diversification and risk tolerance. It can also be termed as understanding of various financial concepts and how they can interplay with your life.

Exhibit 1: Financial literacy can bridge the gap between where you are and where you want to be.

What are the three key aspects of Financial Literacy?

Financial Knowledge, Financial Attitude and Financial Behaviour are the three components that encompass Financial Literacy. Here’s looking at what they mean:

Financial Knowledge includes basic money concepts such as simple interest, compound interest, effect of inflation on investment returns.

Financial Attitude is one of the most imperative concepts of Financial Literacy. Research has concluded that people who have a positive financial attitude, have a wider inclination for saving, less propensity to consume and high risk tolerance.

Financial Behaviour is how people value money in their lives. Many say “Money is the root of all evil”, surely poverty is no good either. People may have different priorities which may make them react differently.

What makes it the need of the hour?

People all over the world are struggling with high rates of personal and professional debts, meagre incomes, negligible savings. And adding on to all the troubles is the financial market place that has complicated financial products, which is a struggle to understand for a layman. There has been an incremental increase in financial products and services which makes it more important for people to choose from various avenues so as to achieve their financial goals. With the help of financial literacy, people will be better equipped to manage their money, personal taxes, debts and achieve their long and short-term financial goals in the process. 

The government and employers are taking less initiative in managing investment funds for the public, thus bringing additional responsibility on the shoulders of the general public to secure their future. We all have goals in our mind and we all are willing to work towards it at any cost but it is very important that your hard earned money is secure and multiplying.


Is Financial Literacy for the youth?

Financial Literacy is not restricted to an age bracket. It’s available for all groups of the society irrespective of gender, income level, employment status, ethnicity, family background and other societal markers. However, financial education must be introduced in the youth’s education curriculum early in the days. This will help our children make well informed decisions with their money. 

Due to a false belief that money management is the job of an adult, most of the youth face difficulties in managing their resources. The young adults start minting money with no idea on how to manage what they’re earning. If our youth aren’t educated in finance, then we would miss out on an opportunity to create millennial financially responsible citizens of the country.


How does it affect the society?

Exhibit 2: Effect of Financial Illiteracy


The fact that today’s children and young adults are the agents of future economic development calls for taking necessary measures to improve their Financial Literacy. The objective is not to make target groups financial experts but individuals capable of managing their own funds. If students from a young age know how to take correct actions towards financial issues, then the society will have less money related problems at large which is one of the most vital issues in our economy. The role of Financial Literacy will be accomplished if the youth acquires life skills that would be necessary in order to function as an active and responsible citizen.

Team Investoday