Financial literacy is the ability to grasp finance. It refers to the set of skills and knowledge that enables a person to form a good decision through their understanding of finance. Several empirical studies have found that poor risk diversification, lower level of saving, high-cost debt, and no financial plans for retirement are the outcomes of lack of financial literacy. As per the report published by VISA global financial literacy in the year 2012 in that report they had mentioned that -“India is lagging behind the global standard and it secured 23rd slot in the overall ranking”. The need is that there should be comprehensive research on financial literacy among individuals so that they can also become a good financial planner.
What exactly financial literacy means:
One may easily interpret financial literacy thanks to the flexibility to understand and apply the processes and tools associated with financial literacy. It should be construed in one in all manners, thin and thick. From a traditional perspective, one interprets financial literacy on how one acquires, manages, and accumulates money for personal/private use. Understood during this vein, financial literacy involves a spotlight on money as a tool for accomplishing one’s own life goals. Consider the spending of money to watch a movie or buy food or drink. From a thin point of view, being financially literate requires an understanding of the alternatives choices made in an endeavor to amass money to afford the service and products. The main focus of a thin view of the financial literacy relates to the dollars and cents outcomes of the decisions made. A broader point of view of financial literacy recognizes that one’s financial choices and decisions occur within a social system which affects the lives of other participants in that system. People make financial choices that affect the lives of themselves et al. These decisions result from the degree of care or control that one experiences in society.
What exactly financial literacy do to an Individual:
Living in the world is more financially driven rather than the trade-driven which leads to a quality life and it depends upon the individual understanding of finance. An adequate level of financial literacy is required for an individual for financial wellbeing which leads to strong management of day to day money transactions.
Insurance and pension plans are important for an individual for ensuring the secure retired life. This requires in-depth knowledge of the markets as well as different financial products that are available in the markets. It should always be seen in the greater schemes of things and should be viewed as a holistic approach to long term financial plans. It should not be done on an individual bias (HOW MUCH SHOULD I SAVE FOR MYSELF), nither it should be short term (HOW MUCH MONEY I WOULD BE REQUIRING INCOMING 5 YEARS), we should always cater our family and we should think about them before planning we should always think about their need, their health, their requirements for coming 30-40 years.
Benefits of being financial literate:
- Budgeting skills: Being a good financial literate helps in improving the budgeting skills of an individual.
- Saving habits: When a person knows the different avenues of investment it helps the person so save the money so that he can invest the money somewhere which can help them in their thick and thin times.
- Dynamic/Vast ecosystem: The market is volatile and ever-changing with a mix of both local and global players, technological advancements through the use of financial technology, e-trading, etc. helps individuals to make a correct decision.
- Helps in individuals retirement planning: If a person is good financial literate then he would face no financial crises at the time of retirement.
- It helps in setting realistic goals: When you have finances in check, it becomes quite easier for a person to sit down and set the goals which are best for him as well as her family.
- It helps in managing debts: If a person is carrying a lot of debt, learning about debt management can save him from being insolvent
Initiatives are taken by the government to make their citizen financial literate:
The RBI on its part is doing many programs to make the individual a financial literate. The government agencies are also running different certification courses which give the individual knowledge about finance. With the help of SHG group’s members and NGO’s, they are running door to door campaign to make the citizen more financially strong.
To conclude, financial literacy has a role to play in so many areas of everyday life:
• Financing homeownership.
• Financing higher education.
• Financing retirement security.
• Making people more astute when saving and investing.