What is ‘Financial literacy ‘
Financial literacy is the education and understanding of the various financial spheres, including sections related to the management of personal finances, money and investments. This section deals with the ability to manage personal Finance in an effective manner, and it includes knowledge on making decisions about personal Finance such as investing, insurance, real estate, paying for College, budgeting, Retirement and tax planning.
Breaking down the ‘Financial literacy ‘
Financial literacy involves the knowledge of financial principles and concepts, such as financial planning, compound interest, managing debt, best methods of accumulation and time value of money. The lack of financial literacy can result in poor financial choices that can have negative consequences on the financial well-being. Thus, the Federal government created the financial literacy and education Commission, which provides resources for people who want to learn more about financial literacy.
The basic steps to achieving financial literacy include learning the skills to create a budget, track expenses, learning methods to pay off debt and effective planning for retirement. These actions may also include consultation with a financial expert. Education on the subject includes an understanding of how money works, creating and achieving financial goals and implementation of internal and external financial problems.
The importance of financial education
Financial literacy helps people to become self-sufficient so that they can achieve financial stability. Those who understand the subject must be able to answer a few questions about the purchase, for example, whether the item is required, whether it is affordable, and whether it will be an asset or a liability.
In this field it is shown that the behaviour and attitudes people have about money that apply to their daily lives. Financial literacy shows how the man makes the financial decisions. This skill can help a person to develop a financial road map to determine what he earns, what he spends and how much he owes. This topic also affects small business owners who contribute significantly to the economic growth and stability.
Financial illiteracy affects all ages and all socio-economic levels. Financial illiteracy makes many people become victims of predatory lending, mortgage loans, mortgage, and fraud and high interest rates, which could result in bad credit, bankruptcy or foreclosure.
The lack of financial literacy may result from the large amount of debt and making poor financial decisions. For example, the advantages and disadvantages of fixed and variable interest rates-these are concepts that are easier to understand and to make informed decisions about if you have the skills of financial literacy. Based on the research data on the financial industry regulatory authority, 63% of Americans are financially illiterate. They lack the basic skills to reconcile your Bank accounts, pay your bills on time, pay off debt and plan for the future.
Teaching financial literacy must also include organizational skills, attention to detail, consumer rights, technology and the global economy because the global economy significantly affects the U.S. economy.