Financial literary is the concept of being educated in financial matters that are essential for daily life, our future and handling our personal finances noted by Bahaa Abdul Hussein. Surprisingly, not a lot of people have mastered this in today’s age. Studies show that only 65% of people are financially literate in the United States. This number also fluctuates in other parts of Asia. In this article we discuss the importance of being financially literate, the various components of financial knowledge and its benefits.
Why is financial literacy needed?
Like many life skills, knowing how to handle your finances is also essential to our life in society. Many people live pay cheque to pay cheque and knowing how much money to allocate every month helps us save for the future. Likewise, we should also have a rainy day fund and put away a portion of our salary. It is estimated according to the 50-30-20 rule that 50% of income must go to essential expenditure every month, 30% for discretionary use and 20% savings. But this is difficult to accomplish for many people. That is why financial literacy is valuable to your life.
How will financial literacy help us?
Being financially literate ought to help all of us lead a better life. It will help us become financially stable individuals responsible for our own financial decisions. By learning the art of expenditure and debts, we can reach our financial objectives and cut down on expenses every month. This will also help easier our financial stresses and anxieties once we become adept in making budgets. It will also help prepare us better when we learn to stay on top of credit card payments, loan payments, investment and insurances.
Components of financial literacy
– Budget
Creating a budget every month is essential to survival and will help us make better financial decisions that affect every area of life.
– Investment
Learning the art of investment will also help us be ready for the future. Learning existing market trends and projected growth will allow us to stay ahead of the recess curve.
– Borrow
We would all have to borrow some money at some point of life. Knowing the art of borrowing will also help us in handling our finances better.
– Taxes
Understanding the impact that taxes have on everyday expenses as well our income will go a long way in making us financially literate. In this way, we can become financially responsible citizens who also contribute to the economic growth of a country.
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