Why is Financial Literacy Important?

Finance has always been at the extreme levels of discussion for the Indian population. Earlier it was hardly spoken about due to a lack of actual knowledge of financial terms and institutions. Whereas recent times have turned upside down and how. 

Financial content has attracted more eyeballs on the internet than ever. All thanks to rigorous marketing by fintech start-ups and influencers preaching financial literacy over the Internet. And now since it’s been highly preached, there comes an element of confusion that might mislead the non-finance people about investments and payment structures. This calls for an underlying need for understanding finance at the grassroots level.

Let’s deep dive to know why financial literacy is a skill one can’t afford to neglect in today’s time.

Why does financial literacy matter?

Finance is universal:

From buying a house to paying your taxes, from getting life insurance to buying a car on EMI, finance is everywhere. Each profession and age group has different financial needs and habits. This makes financial literacy a life skill needed compulsorily to improve lifestyle. Did you know that better financial planning is also linked with better mental health? Even slight mismanagement in finances can cause a material impact on families. To avoid this, it’s important to strike a balance between the income and expenses of the family.

Achieving Financial Stability:

Getting alarmed about your financial health is sooner the better. Managing money well in the youth years increases the chances of financially secured retirement. An informed financial habit such as investing monthly or limiting monthly expenses can go a long way toward having a huge retirement fund without any lagging debts. Not just for retirement purposes, but a healthy financial backend can help greatly in times of crises or medical emergencies. 

Keeps frauds at bay:

Being financially literate, one can easily find loopholes in any scammed investment scheme and avoid it knowingly. If an individual is well-versed in basic financial knowledge, the likelihood of getting deceived is very less. One of the main reason why financial literacy is a  must is not to fall prey to lucrative and false investment schemes that falsely promises enormous returns in the short term.

Some financial terms might sound unfamiliar but as we get deeper into understanding financial literacy, the elements that it includes get easier to comprehend.

But what exactly does financial literacy include?

Getting your finances right doesn’t necessarily mean just investing. Financial Literacy has many elements to it which involve securing oneself from any mishaps due to greed and ignorance. To avoid such adversities, these 3 basic financial avenues must be catered to first.

Emergency Funds:

After huge layoffs by unicorn startups in India as observed recently, it’s of utmost importance to have an emergency fund consisting of survival money for your family for at least 6 months. It will give you a cushion to cater to any unforeseen circumstances. The last couple of Covid years is the biggest instances that acknowledge the importance of having an emergency fund handy.

Debt Instruments:

Hefty loans and EMIs are deceiving for increasing the demand for unwanted products. Avoid getting into the EMI trap by gradually calculating the added interest and saving on that. Attractive sales practices have normalized getting every item on EMI by lucrative payment options. Even after claiming no interest EMIs and 0% loans, it still includes hidden charges which are often overlooked upon. 

Tracking, Saving, and Investing money:

Keeping a track of your finances is the first step to financial awareness. Then comes savings and investing in various avenues. Money sitting in your bank account is just prey to inflation if not invested timely and cautiously. Investing on the other hand is an art. You can get better only if you’ve practiced enough and there are no specific rules to it. Allocating your surplus funds into debt and equity instruments is solely dependent on your risk appetite and knowledge.

Being financially literate doesn’t only make an individual secure but is also regarded as a responsible citizen. The better financial health of the population directly impacts the country’s financial position on a large scale. Increase in the financial literacy index results in financial security and prosperity of the economy as a whole. Besides this, financial literacy should be embraced as a life skill to upskill one’s lifestyle.