The importance of financial literacy
28 Jul 2021
Despite its undeniable importance throughout our lives, sufficient financial literacy is often something that a large number of students leave school without.
Financial literacy is defined as having the required skills and knowledge for a practical and theoretical insight of the various aspects of money management.
Such skills include saving, budgeting and investing, which enable you to make well-informed decisions through all stages of life.
Moreover, financial education should also comprise of a broad overview of macroeconomic concepts such as inflation, deflation and market bubbles which can have a profound impact on our personal finances.
This is summed up by financial expert Dr. Kylen: “Creating a balance between learning practical personal money management and understanding the broader economic structure is the key to true financial literacy. When it comes to financial literacy, covering as many bases as possible is the key to reaping the most reward.”
Here are five reasons why financial literacy is essential to our lives.
Taking advantage of financial trends
Being financially educated allows you to make the most of the trends taking place in the economy. Having the knowledge to pinpoint economic circumstances such as inflation or a market bubble can be crucial in avoiding poor financial decisions. Buying or selling major assets during periods of volatility may lead to substantial losses. Indeed, one of the most important links between financial literacy and education is the understanding of aligning personal money management with wider trends within the economy.
Being well-informed of current possibilities
As technology evolves at lightning speed, and our lives become increasingly digitalised, the way we use and spend money is changing all the time. Having an understanding of economic systems makes it far more straightforward to keep abreast of fast-moving trends. Many of the systems now in use have only emerged relatively recently. Take digital-only banks as an example. According to the findings of a global survey carried out by deVere earlier this year, 59% of millennials said they only ever use digital banking services or are planning to make the switch to do so this year. Indeed, according to a published white paper entitled “Millennials + money: The unfiltered journey” 92% of millennials firmly distrust banks and many see them as an unreliable source of information.
Making long-term financial objectives
The sooner you possess the aforementioned necessary skills and knowledge, the sooner you can start to establish long-term financial objectives. Naturally, the quicker you set these goals, the more time you have to realise them. The difference in the financial objectives you can accomplish depending on your age is one of the principal reasons why receiving a financial education from a young age is crucial.
One of the most essential parts of a sound financial education is the ability to recognise possible money-grabbing schemes or when a venture is set for failure. Having the understanding to identify unsound investments and typical language used by fraudsters to scam people could potentially prevent you from devastating financial consequences.
Preparing for emergencies
The coronavirus pandemic has had a focusing of minds effect in regard to the importance of saving, and reinforces the fact we’re living in a time of personal financial responsibility. It’s advisable to hold around three to six months of expenses in an ‘emergency fund’, which of course the pandemic is a prime example.
The economic effect of the Covid crisis has reinforced the fact that the ‘living for today’ attitude, whilst a good thing, can result in future problems if savings are insufficient.
In addition, having the knowledge of all aspects of finance is a great way to protect yourself against unforeseen situations. Understanding how to respond to unpredictable larger marketplace forces can be vital. Having financial literacy skills boots your critical thinking capabilities, allowing you to circumnavigate any obstacles more easily.
These are just a few reasons why a solid financial education from a young age is now more important than ever. Having the correct financial skills and understanding can be the starting block to achieving true financial freedom in later life.
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