Financial Literacy: Why is it Important and How to Improve?

financial literacy

Isn’t it unbelievable that a country with a population of 136+ crores and a literacy rate of 74.04% has a financial literacy rate of merely 24%? 

Yes, you read it right! More than half of the Indian population is financially illiterate, which means we do not have basic financial management skills. Our knowledge of financial management comes from friends, parents, or neighbors who are usually clueless themselves. But where did we go wrong? 

The problem starts from the roots. People tend to believe that a literate person knows his/ her finances in and out, but most of us still live from pay cheque to pay cheque, forget about managing our finances. 

Now the question is, how can we solve this problem and ?

The first step is always the hardest. First of all, we need to know and understand what financial literacy means. Let us clear the basics!

What is Financial Literacy?

If we go by definition- Financial Literacy is the possession of the set of skills and knowledge that allows an individual to make informed and effective decisions with all of their financial resources.

Basically, financial literacy refers to the skills we possess to effectively manage, use, understand, save and invest our finances to get the desired financial outcomes. It includes financial management, budgeting, and investing appropriately. 

But why do we need financial literacy?

It helps us understand four basic financial management components: budgeting, debt, saving, and investing. The idea is to inculcate financial discipline and financial management skills to achieve your future goals. It also helps you to stay out of the debt trap. The final goal is to have in-depth knowledge to manage your finances and have a steady financial growth plan. Moreover, it helps us to attain financial freedom and stability. In a nutshell, it is a way to lead a financially responsible life and worry less about your finances.

How can we become financially literate?

Your role doesn’t end here; it is just the beginning. Now that you understand the meaning of financial literacy and its significance, our next goal is to know how you can become financially literate. Let us take you through the ways to improve your financial literacy.

  • Read

The first step to learning anything is to start from the basics. And our basics are books! You might have read enough fiction, but now is the time to wrap your head around learning your finances better. Whether you are starting from scratch or jumping back on the financial literacy wagon midway, you can read and know your finances. Wondering where to start?

Well, you can start small with “Personal Finance for Dummies” by Eric Tyson. It might not look impressive, but you would be glad once you finish reading as it explains basic financial concepts accurately. Another book that would explain where you are going wrong with your financial planning is “The Behavior Gap: Simple Ways to Stop Doing Dumb Things with Money” by Carl Richards. In his book, Richards, a financial planner, points out the mistakes we make while dealing with money and tips to improvise. 

  • Learn

Reading would be pointless if you are not learning anything meaningful. You can read four books in a month and still be clueless. The whole point of reading more is to learn and manage your finances better. Reading leads to better learning and understanding of your current financial situation. The whole idea of financial literacy is built around making you more financially responsible. So, don’t just read; try to understand and learn for the future.

  • Budget

One major problem that we all face is spending out of our means. Financial discipline is the key to money management, and it starts with budgeting. Prioritizing your needs over your wants can be difficult initially, but it takes you a long way. If you haven’t started budgeting, it is never too late to develop a good money management habit. So, start working toward your goals now!

  • Plan

You must have read that “a plan without a goal is just a wish.” The first step toward financial freedom is to set goals. 

Are you planning to buy a new house in the next five years? Or planning an early retirement? 

Be it a short-term goal like buying a new car or a long-term goal like early retirement now is the time to make the first move and plan to achieve your goals. 

  • Grow

Our ultimate goal is to manage our money in a better manner. Learning is not going to help unless you put it into practical use. So, start working on your plans and see your financial growth graph moving up steadily. 

At this point, we are sure you know where you are in terms of your financial management skills and goals. If you are still dicey and trying to figure out where to begin due to existing debts, reach out to us at 0124-666-3-666 to know more or drop your details here. Our trained debt counselors would reach out and will be happy to help you.