WHAT IS FINANCIAL LITERACY ?

MEANING

FINANCIAL LITERACY IS THE ABILITY OF AN INDIVIDUAL TO UNDERSTAND AND EFFECTIVELY USE VARIOUS FINANCIAL SKILLS, INCLUDING PERSONAL FINANCIAL MANAGEMENT, BUDGETING, AND INVESTING.

TO BE FINANCIALLY LITERATE MEANS:-

• TO KNOW HOW TO PAY BILLS
• TO KNOW HOW TO BORROW MONEY
• TO KNOW HOW TO SAVE MONEY 
• TO KNOW HOW TO INVEST MONEY

FUNDAMENTAL CONCEPTS OF FINANCIAL LITERACY 

FUNDAMENTAL LITERACY CONSISTS OF VARIOUS COMPLIMENTS AND SKILLS WHICH ALLOWS AND INDIVIDUAL TO ENHANCE THEIR KNOWLEDGE REGARDING THE EFFECTIVE MANAGEMENT OF MONEY AND DEBT. 

COMPONENTS OF FINANCIAL LITERACY 

BUDGETING

THERE ARE FOUR MAIN USES OF MONEY THAT DETERMINE A BUDGET 

• SPENDING 
• INVESTING 
• SAVING 
• GIVING AWAY 

BUDGETING HELPS IN MAINTAINING A BALANCE BETWEEN PAYMENT OF DEBT, SAVING, AND INVESTMENT. 

INVESTING 

TO BECOME FINANCIALLY LITERATE, AN INDIVIDUAL SHOULD KNOW ABOUT VARIOUS COMPONENTS OF INVESTMENT.

• INTEREST RATES 
• PRICE LEVEL
• DIVERSIFICATION 
• RISK MITIGATION 
• INDEXES 

BORROWING 

BORROWING IS IMPORTANT FOR FINANCIAL LITERACY BECAUSE, AT ONE POINT IN LIFE, WE ALL NEED TO BORROW MONEY LIKE EDUCATION LOANS, CAR LOANS, HOME LOANS ETC.

FOR AN EFFECTIVE BORROWING, ONE MUST CONSIDER THE FOLLOWING POINTS 

• INTEREST RATE 
• COMPOUND INTEREST 
• TIME VALUE OF MONEY 
• LOAN STRUCTURE ETC 

TAXATION 

GAINING KNOWLEDGE ABOUT VARIOUS FORMS OF TAXATION AND HOW THEY IMPACT AN INDIVIDUALS NET INCOME IS CRUCIAL FOR OBTAINING FINANCIAL LITERACY. WHETHER IT BE EMPLOYMENT, INVESTMENT, RETAIN INHERITANCE, OR UNEXPECTED, EACH SOURCE OF INCOME HAS A DIFFERENT TAXATION RULE. 

PERSONAL FINANCIAL MANAGEMENT

PERSONAL FINANCIAL MANAGEMENT INCLUDES AN ENTIRE MIX OF ALL THE COMPONENTS OF FINANCIAL LITERACY.

FINANCIAL SECURITY IS ENSURED BY BALANCING A MIX OF FINANCIAL COMPONENTS. 

BENEFITS OF BEING FINANCIAL LITERATE 

• MORE CONTROL OVER PERSONAL FINANCE 
• HELPS TO UNDERSTAND THE IMPORTANCE OF SAVINGS
• HELPS IN SETTING UP FINANCIAL GOALS 

HELPS IN REDUCING DEBT BY GIVING AN UNDERSTANDING OF THE IMPACT OF DEBT ON BUDGET 

INDIA 

INDIA IS HOME TO AROUND 17% POPULATION OF THE WORLD WITH A LITERACY RATE OF AROUND 74%, OUT OF WHICH ONLY 24% IS FINANCIAL LITERATE.

WITH THE AIM OF CREATE A FINANCIALLY AWARE POPULATION, THE RESERVE BANK OF INDIA RECENTLY LAUNCHED THE NATIONAL STRATEGY FOR FINANCIAL EDUCATION(NSFE) 2020-2025.

HOW TO IMPROVE FINANCIAL LITERACY?

FINANCIAL LITERACY CAN BE IMPROVED BY SEVERAL PRACTICAL STRATEGIES SUCH AS:- 

• CREATING A BUDGET TRACK HOW MUCH MONEY YOU RECEIVE EVERY MONTH AND HOW MUCH MONEY YOU SPEND EVERY MONTH USING PEN AND PAPER OR A BUDGETING APP. YOUR BUDGET INCLUDES INCOME FIXED EXPENSES, NON- ESSENTIAL SPENDING, AND SAVINGS.
• PAY YOURSELF FIRST 

          BUILD YOUR SAVING FIRST; THIS IS A REVERSE BUDGETING STRATEGY THAT INVOLVES           CHOOSING A SAVING GOAL, DECIDING HOW MUCH YOU WANT TI CONTRIBUTE TOWARDS IT EACH MONTH.

• PAY BILLS PROPERLY 

        THE FIRST PRIORITY SHOULD BE PAYING MONTHLY BILLS, MAKE SURE THAT PAYMENTS SHOULD BE MADE ON TIME. 

•       CHECK YOUR CREDIT SCORE 

         HAVING A GOOD CREDIT SCORE HELPS IN GETTING THE BEST INTEREST RATES ON LOANS AND CREDIT CARDS.

•       MANAGING DEBTS 
• INVESTMENT IN YOUR FUTURE 
• GET YOUR CREDIT REPORT 

ACCORDING TO THE FINANCIAL INDUSTRY REGULATORY AUTHORITY(FINRA), ABOUT 66% OF THE AMERICAN POPULATION IS FINANCIALLY ILLITERATE.

ACHIEVING FINANCIAL LITERACY IS ESSENTIAL IN TODAY'S SOCIETY DUE TO THE EVERYDAY USE OF MONEY IN LIFE, SUCH AS STUDENT LOANS, CREDIT CARDS, INSURANCE, ETC.

AS WE CAN SEE HOW IT IS IMPORTANT FOR AN INDIVIDUAL TO BE FINANCIALLY LITERATE. IN TODAY'S WORLD, IT BECOMES MORE IMPORTANT TO BE FINANCIALLY LITERATE IS HELPS AN INDIVIDUAL TO MANAGE THEIR MONEY WELL.