Is financial literacy important?
Importance financial literacy:
According to Investopedia, Financial literacy is the ability to understand and effectively use various financial skills, including personal financial management, budgeting, and investing. When you are financially literate, you have the foundation of a relationship with money, and it is a lifelong journey of learning.
The earlier you start, the better off you will be, because education is the key to success when it comes to money.
Several studies have documented that those who have higher financial literacy are more likely to plan for retirement, probably because they are more likely to appreciate the power of interest compounding and are better able to do calculations. (Swiss Journal of Economics and Statistics)
10 reasons why financial literacy is important:
1. Improved financial decision-making:
With financial literacy, individuals are better equipped to make sound financial decisions that will impact their financial future. They can analyze their financial situation, create a budget, and invest their money wisely.
In addition, they can also make some changes on their budget based on the result of their Financial Analysis.
2. Better financial management:
Financial literacy helps individuals manage their money more effectively. They can keep track of their expenses, avoid bad debt, and develop good money habits that will serve them well throughout their lives.
Since they can manage their finances effectively, it will be easy for them to grow their money by investing it to the right investment vehicle that is aligned to their goals and investment appetite.
3. Increased financial security:
When individuals have financial literacy, they are more likely to make smart financial choices that will help them build a solid financial foundation. This can lead to increased financial security and reduce the risk of financial crises.
Why? Because one of the financial concepts that you will learn in financial literacy in by setting up Emergency Fund as well as Insurance.
4. Greater financial freedom:
They can make choices about their careers, where they live, and how they spend their money without feeling constrained by financial limitations. The importance financial literacy can provide individuals with greater financial freedom.
Additionally, it will enable you to let your money work for you once you understand already all the concepts needed.
To do that, you must allocate some of your funds to investments such as investing in stock market, investing in REITs, building your real estate portfolio for passive income and other investment vehicles that you are knowledgeable and comfortable to invest in.
A piece of Advice: Never ever invest into something that you do not understand. Take time to study the investment vehicle and calculate the risks.
5. Improved quality of life:
When individuals have control over their finances, they can improve their overall quality of life. They can save money for emergencies and future goals, enjoy leisure activities, and pursue their passions.
6. Avoiding financial scams:
Once you’re already equipped with all the basic financial concepts you will be able to analyze a certain investment opportunities. Financial literacy helps individuals identify and avoid scams that can negatively impact their finances.
With knowledge about common financial scams and frauds, individuals can protect themselves from losing money to fraudulent schemes.
I have personally learned in my Personal Finance Training that in building wealth, you need time as your main ally; therefore there’s no get-rich-quick formula. You must put in the effort and be disciplined to focus on achieving your goals to become financially free.
7. Building good credit:
A good credit score can lead to lower interest rates on loans, better insurance rates, and even job opportunities. Emphasizing the importance of financial literacy helps individuals understand how credit works and how to maintain a good credit score.
8. Planning for retirement:
With knowledge about retirement planning, individuals can make informed decisions about their retirement savings and ensure they have enough money to live comfortably in their golden years. Financial literacy helps individuals plan for their retirement by understanding how to save and invest for their future.
9. Making informed financial decisions as a business owner:
Are you a business owner? This is for you too. Financial literacy is crucial for entrepreneurs and small business owners, who need to make informed financial decisions about their businesses.
Having the knowledge about financial management and accounting, business owners can make sound decisions that will lead to long-term success.
10. Improving financial literacy for future generations:
By teaching children and young adults about money management, budgeting, and investing, we can help them build a solid financial foundation and prepare them for a successful financial future. Take note that Financial literacy is a valuable skill that can be passed down to future generations.
Finally, financial literacy is essential for anyone who wants to achieve financial success and security. By learning about money management, budgeting, investing, and other important financial concepts, individuals can take control of their finances and build a brighter financial future for themselves and their families.