Understanding the Importance of Financial Literacy

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Understanding the Importance of Financial Literacy
Smita Nag - 20 April 2019

We all have to manage our finances in a manner so as to not go broke by the end of the month. However, it is still disheartening to see people oblivious to the need for educating themselves financially.

However, to begin with, what is the meaning of financial literacy?

Financial literacy is nothing but the ability to understand money and it’s functioning like money management, investments and expenditure. Awareness about finances can help one to make the correct decisions regarding investments of their hard- earned money. Your investment decisions will set you apart from the herd for which knowledge on the same is required in order to gain confidence while taking the reins in your hands.

Here are a few factors, which indicate the importance of being financially literate;

Planning a budget

The first step to achieve financial soundness is by making a list of your earnings and expenditures. Through budgeting one can organise their expenditure and savings accordingly which can help to maintain a saving limit.

Decreasing parental dependency

While just starting out, it is of great importance to understand your money in order to decrease dependency on parents. Also, by educating oneself about personal finance aids in taking better money management.

Economic benefits and being responsible

Being financially well read can add to economic stability as it helps one to make sound investments helping the economy in return.

Knowing your options

With abundance of financial lenders and an ocean of options to choose from in the market, one needs to have knowledge of one’s finances to make the correct choice while investing. It is always wise to weigh your options and choose the best one which will suit your investment decisions.

Preventing confusions

Much like the sea, the market is also changing continuously tagged with volatility, players including both domestic and international, and drastic technological advancements. Such factors can easily be intimidating for a novice investor. Hence, it is necessary to read up and be aware of the markets and finances before investing.

Planning your retirement

In addition to the above-mentioned factors, one also needs to understand that whatever they invest today will be the basis of their livelihood in the future, your retirement days. Therefore, it is necessary to have sound knowledge of the markets both stock and money to understand the funds that will fetch good returns, easing your golden days of retirement.

However, point to be taken into consideration is that investments need to be nourished with patience and taken care with time in order to fetch worthwhile returns.

One must always read up as much as possible about the markets and the world of finance and the developments to prevent himself from making any wrong decisions leading to unnecessary losses and affecting the quality of your financial life.

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