COVID19 has affected people’s lives in many ways. Apart from physical and mental health, it has also affected their financial condition. Millions of people have lost their jobs. Almost everyone found themselves looking at their financial condition. Mostly, people find it difficult to manage their finances effectively. This is because of their poor financial decisions which is a consequence of poor financial literacy.
What is financial literacy?
In very fundamental terms, financial literacy is the knowledge of finances. It is the possession of skills and knowledge with which a person can make healthy financial decisions. A financially literate person can use money in the right way while people with poor knowledge struggles to make their financial decisions and often end up making poor decisions.
Why is it important?
Money touches everything in our life. There is no area where we do no use money. Education, house, travel, food, living everything depends on money. Every person in this world uses money. However, many people struggle with making the right decisions about using their money. This leaves them in a financially bad condition which consequently, affects their mental health.
According to a 2018 FINRA study, 53% of adults in The United States feel stress when thinking about their financial situation. This condition is worse in younger people.
Below are some reasons listed explaining why financial literacy is necessary.
Be it a country or a small household, making a budget is one of the most important decisions that one has to make. Most people create a monthly budget and yearly budgets. Budgeting is planning how to use money and other financial resources to get the best result. In absence of financial literacy, people make a blunder of their budget and that creates blunder in their life.
We all know the importance of saving. still, we often find ourselves saying we do not have enough savings. Saving helps us in maintaining a healthy financial situation. Almost all our goals like owning a house, buy a car, have a holiday in some foreign country- all depends on saving. Without saving it is easy to get trapped in a web of debt.
Only a person with good financial literacy can save effectively. Therefore, financial literacy is very important to fulfill your dreams.
A stock market is a place where miracles happen. Everyone thinks of investing and making millions in profit but very few actually achieve it. Why? The answer is financial literacy. A financially literate person can make good investing decisions. Understanding ways to invest, how to invest, and where to invest is an important part of being financially literate. Therefore, financial literacy also helps you with investing and making a profit.
In present times, Debt is also a kind of an integral part of everyone’s life. Be it because of their education loan, mortgage, or any health emergency, most often, people find themselves in debt.
Paying your installments and saving simultaneously requires financial literacy. In absence of financial literacy, people get trapped in debt, and sometimes they do not get out of it till their death. therefore, for having a financially secure future, financial literacy is very important.
5. Debt settlement and Debt consolidation
Debt settlement and Debt consolidation are two ways of getting out of debt. However, you need a good knowledge of finances for both these processes. Though most people hire a professional company for the task. Still, understanding finances will save you from fraud or any other malpractices. Financial literacy will also help in getting a better deal over your debt.
Financial literacy is very important. As stated above, it gives you a better knowledge of debt settlement and debt consolidation also. In simple terms, it is effectively dealing with money. Since money is everywhere and therefore, financial literacy is also needed everywhere. However, most people do not pay attention to this and end up making financially poor decisions which consequently make them poor. Financial literacy not only helps us with our monthly or yearly budget but also helps us in managing our debt better and investing.