The Importance of being financially literate

Introduction

With digital payments on the rise, you can now send and receive money in a blink of an eye, but in that blink of an eye, you can lose it too. Every year billions of dollars are lost worldwide in frauds, but thankfully, you can avoid all that by developing financial literacy.

Literacy now is not just limited to reading and writing, but it now spreads into the domain of digital literacy, financial literacy, and much more. In this article, you will understand what financial literacy is, its importance and check what is required to be called financially literate.

What is Financial Literacy?

As per Investopedia, financial literacy is "the ability to understand and effectively use various financial skills, including personal financial management, budgeting, and investing."

In simple terms, being financially literate means that you understand how to invest money, know how to judge the safety of your investments, how to use financial products such as fixed deposits, insurance, loan, etc. Moreover, you understand how to avail the financial products, know which financial product is suited for which purpose, basic understanding of banks, financial intermediaries, taxation, and basic tax laws. It also includes personal finance management and protecting your finance from risks and frauds.

All that may seem a little too much, but financial literacy is the preliminary step to make safe and rewarding financial decisions.

Why is it crucial to be Financially literate?

As per the RBI annual reports, the share of digital transactions in the total volume of non-cash retail increased to 98.5 percent during 2020- 21, with digital transactions going over Rs 4,00,000 Cr. The Indian digital payments industry is also estimated to grow up to US$700 billion by 2022.

With such significant transformations happening in the finance field, the following reasons explain why it's crucial to be financially literate-

The increasing complexity of financial products :-

Consumers are now bombarded with various sophisticated financial products; with so many options to choose from, it's pretty challenging to make decisions. Being financially literate can help consumers to make educated decisions. When taking loans for their home, education, cars, or buying insurance or before investing their life-saving in investment, they can see the hidden costs and terms, compare one product from another and ask relevant questions before purchase.

Avoid risky investments : -

People are often lured towards finance in search of windfall profits and end up getting scammed. Often such investment schemes promise exorbitantly high profits, offer minimum security and promise quick returns. A financially literate person can easily avoid such Ponzi schemes and help report such scams, as they are better aware of the financial world. Similarly, they can also make better stock market decisions and control risks.

Inflation : -

With inflation of around 6%, it's essential to protect your savings from vanishing in thin air. It's necessary to understand inflation for long-term savings and financial decisions. An excellent measure to protect your savings against inflation is to invest them in safe and high interest-paying investments like- Fixed deposits, recurring deposits, SIP, Mutual funds, etc. But to pick and choose the best option, a basic knowledge of each investment is first required.

Frauds : -

As per a research study by Javelin Strategy, around $56 billion were lost to financial scams in 2020. Everything ranging from your credit card, debit card, pin, passwords, mobile phone, bank accounts, etc., are at risk. A consumer who knows the working of different financial tools, financial processes and digital hygiene practices can better protect oneself from fraudsters. Moreover, it is not just limited to protecting oneself but also reporting and bringing any financial fraud attempts to justice.

Debt management : -

Debt is now an essential part of personal and professional life. People take loans for various things ranging from home to education to electronic gadgets. Financially literacy can help a person choose the best option, identify total costs, avoid hidden terms and conditions, plan out repayment, etc. All of it can help reduce financial stress and anxiety.

Increased assets and prosperity : -

managing money is one of the most challenging tasks; it involves planning out your investments, managing expenditure and avoiding risks. A careful and well thought out financial plan is crucial to getting high returns from your investments. It helps you search for the best and low-cost options for yourself, your business or your family. Moreover, it also helps keep your investment costs low and profits high.

How to get financial know-how?

If you want to get financial know-how, you have many options to choose from; some of the most prominent ways are as follows-

RBI's Financial Education Initiative : -

Reserve Bank of India, to further India's developmental role, has taken the initiative to expand Financial Inclusion and Education. RBI has created documents, films, exercises, games, activities, etc., in 13 languages for its Financial Education Initiative. This content aims to create awareness about financial services and products, sound financial practices, steps for going digital, consumer protection, etc.

Finance education in school and college : -

Students at school learn financial education in accounting and finance subjects. During graduation, students can either take up a bachelor of commerce, bachelor of economics or bachelor of business administration, etc., courses to further their knowledge of finance. After completing the graduate course in commerce, students can further go for M.Com or MBA.

Online Resources : -

Many websites, YouTube channels, etc., publish content on financial literacy. Students here have the luxury of choice and can learn at their own pace. Much of the content offered by various platforms is very engaging and filled with examples for easy understanding. Some of the prominent examples are- Investopedia, FinnovationZ, etc.

A strong background understanding of financial principles can help people understand and navigate the financial landscape. Financial literacy will help you master essential skills like- Managing risks, planning investments, budgeting, planning savings, developing patience, analytical skills, etc., and help avoid financial stress and anxiety.

If you want to graduate with a Bachelor of commerce or B.Com. (Hons.) Accounting and finance or want to pursue post-graduation courses in commerce, MGU at Bhopal is the best choice to tap the vast opportunities offered by finance. Manasarovar Global University is the best commerce college in Bhopal, offering graduation courses for commerce students. It provides students with the best training, skills, and education to make them industry-ready.