Financial literacy is very important and we can derive benefits from it at all stages of our lives. From being able to get by during your retired years to saving enough money for college education, there are many people today who suffer from financial anxiety as they are always looking for viable financial answers to their never-ending questions. It is sad enough to note that majority of the people in our country is still unaware of even the basic financial concepts which they require knowing for making investment and saving decisions. Research reveals that half of them wouldn’t even qualify for a basic finance quiz. This is gradually becoming an impediment to purchasing a home, making serious financial decisions and planning for retirement.
A consumer who is well-informed is crucial for a stable and strong economy. Studies in Canada, for example, have shown people overestimate how much they know about finance and their over-confidence is pushing them towards further money issues.
So, let’s take a look at the reasons behind the utmost importance of financial literacy:
Budgeting skills have to be mastered.
Although there are factors like social norms, income and other behavioral biases which influence the spending habits of people, one of the biggest factors which affect your financial literacy level is definitely self-control. The ability to follow a budget is an area which most people are least confident of and hence you have to understand the fact that unless you follow a budget and exercise self-control, you won’t be able to tackle your finances. 48% of adults don’t follow a budget everyday for their regular finances and 29% faced a difficulty in keeping aside money for bigger purchases. There are many who don’t have funds ready for an emergency. So, being able to follow a budget is among the first reason to be financially literate.
Spending vs. saving.
You have to understand the most important thing about your personal finances and that is your savings can indeed make a huge different to the kind of financial lifestyle that you want to lead. If only you pay attention to the way in which you spend money, you can watch out for opportunities to curb your expenses. But you have to ensure that savings is the money that you set aside before even you spend them. Make it easier to save money by automating your accounts so that a part of your income is deducted from your checking account and deposited to your savings.
Retirement planning is necessary.
Those who were born between 1946 and 1964 are the baby boomers and they’re all set to retire en masse. As per a Retirement Confidence Survey, workers who were more than 55 years of age said that 60% have less than $100,000 in the form of retirement savings, 37% have saved less than $10,000 and 44% have less than $25,000 in their savings account. The statistics seems to be scary enough and it teaches a lesson that the sooner you start investing, the better for you.
Having appropriate financial knowledge not only helps you with saving, budgeting and retirement planning but it is also helps you with basic decision-making. You can improve your risk-tolerance level when you know what you’re doing with your money. You will easily be able to reach your financial goals when you have enough knowledge.