Why Financial Education is Necessary For a Bright Future?

September 18, 2021 Mutual Fund

We all are working hard to lead a financially secured life. However, uncertainties like the ongoing COVID-19 pandemic may affect our financial well-being. So in order to have a good financial standing we need to be ready for future unpredictability. One major lesson that pandemic has taught us is to be financially prepared to survive, when life throws curveballs at us.

When you think about improving your finances, you should not only focus on earning more but also enhance your financial management. It can change the way you lead your life and assist you to plan for a secure financial future ahead.

Financial management or money management includes activities like savings, investing, borrowing, budgeting, and forecasting. In today’s financial environment, you have a large exposure to multiple exotic financial products and fin-tech advancements which are revolutionizing the way you make and receive payments. So start planning your financial investments, and accrue savings. It is also essential that you should be financially literate enough to understand and have a better control of your finances to be in pink of your financial health.

Many of you may find it complex to understand and select a worthy investment avenues due to lack of financial knowledge and launch various financial products. In addition, some financial institutions also tend to mis-sell their products or services to you by misrepresenting its suitability for you. Reserve Bank of India (RBI) has been warning banks and financial institutions to avoid mis-selling of financial products.

Amid the COVID-19 pandemic crisis, some financial institutions tried to mis-sell their insurance policies by getting the customers in trap by exhibiting the fear of virus and how their insurance policy can cover all medical expenses. However, if you are financially conscious about the features of a financial product or service, then you may avoid being misled about its suitability for you.

In order to overcome these financial challenges, especially in these uncertain times, it is highly significant to focus on your financial literacy. Financial management is a basic life skill that has a direct impact on your financial well-being. Therefore, to improve your financial management and to have a financially secured bright future you must work on your financial literacy at first.

Many of you might think that financial education is needed only at a specific age (for adults), or at times when we have some specific responsibilities and have a large amount of money. But, the money management do require your attention all the times irrespective of your age. Thus, financial education from an early age is necessary to improve this important life skill and encourage active savings behaviour in you from an early age. One who understands how money works, they start earning and investing from an early age and plan for a better financial future.

Financial education is an important element that has a direct impact on your financial well-being. Learning about personal finances and important money management skills at an early age provides you with opportunities to apply them in real life.

Financial knowledge will lay a strong foundation for money habits, to effectively manage your personal finances with budgeting exercise, implement saving strategies, effective debt management, and awareness about the various asset classes that comprise of investment avenues to suit your financial goals.

Financial literacy and structured knowledge about financial decision making is the key to optimal return on the financial resources and your financial stability.

Let me explain you why financial literacy is necessary for a financially secured future:

1. Helps you in wealth creation

Financial literacy and wealth creation are strongly correlated. Financial knowledge will support you to enhance your wealth creation journey and build a corpus. With adequate financial knowledge, you will have the assurance to construct a financial plan that emphases on wealth accumulation to secure your financial future.

Financial knowledge will highlight the importance of S.M.A.R.T goal-setting and budgeting exercise required for wealth creation. You will be having a better control of your finances and focus on building a corpus that provides you financial security for a better future.

2. Make informed financial decisions

Financial literacy often teaches you how to make informed financial decisions. It focuses on your ability to process economic information and financial market news that influences the varying market conditions, so that you can make sound informed financial choices.

Financial knowledge enables you to be financially conscious and you can even ask questions to the financial advisor or professional. You will better understand how the particular financial product or service is suitable for you. If you are financially literate, it reduces the chance of mis-selling financial products.

3. Investing at early age

Financial knowledge helps you to understand the importance of savings and investing from an early age. It assist you to understand the power of compounding required for wealth creation, instils a financial discipline in you to save and invest regularly.

Financial knowledge equips you to make informed investment decisions, select worthy investment avenues as per your suitability and avoid any influenced decisions from behavioural biases. It helps you to plan for a robust investment portfolio based on your risk appetite, investment horizon and objectives. Some of the widely favourable investment options are mutual funds, equities, gold, debt instruments, etc.

Additionally, financial knowledge will highlight the need to plan your retirement as early as possible to build a wealthy corpus over a longer period. You should allocate a certain portion of your savings towards retirement planning.

4. Debt management

Debt is nothing but your borrowings. There are abundance of credit products available such as, credit cards, instant loans, overdraft facility on debit cards, etc. This makes financial literacy an essential aspect, understanding debt and having basic financial knowledge will help you to effectively manage debt.

Millennials focus on instant gratification and fall into the debt trap of credit cards and loans. It is crucial for an individual to manage your debt wisely and prevent it from becoming a debt burden. Financial knowledge will help you to understand the importance of maintaining a debt-to-income ratio and the difference between good debt and bad debt.

5. Prevent financial frauds

We live in a fast-paced digital world that is majorly dependent on online financial transactions and digital finance. Whether it is buying grocery, making a huge amount of NEFT/RTGS banking transaction or making investments all these financial transactions are done online via digital mode of payment.

Amid pandemic, the digital financial transaction gained traction. However, it also leads to rise in phishing attacks, online frauds, etc. Intruders took advantage of the sensitivity of the uncertainties of ongoing COVID-19 and numerous fraudsters impersonating bank representatives and requested sensitive financial information. Most individuals due to lack of financial awareness fell prey to this and lose their accumulated savings and give access to sensitive financial information.

Financial education will empower you to be financially aware of your surroundings and help you to safeguard your financial information in this fintech world. Financial literacy will enable you to take required steps to secure your finances from such frauds, avoid clicking on unfamiliar links, e-mails, and never reveal any financial information over a call unless you are sure about the person.

6. Prepare for unforeseeable events

Financial knowledge helps you to be prepared for any unforeseeable events. It encourages you to build a robust financial plan that could weather any storm. It assists you to understand the importance of maintaining an emergency fund for 12-24 months of expenses including loan EMIs, as a safety net for crisis. It will safeguard your finances and mitigate your financial hardships.

To survive any unforeseeable events, it is essential to include an insurance policy in your financial plan. Financial literacy helps you to evaluate, which insurance policy should you purchase. It will assist you to analyse the features of each life and health insurance policy. You need to ensure your suitability and make informed financial decision that will secure your family from financial instability.

Financial knowledge is a vital aspect of your life and it helps you in various situation to maintain your financial health and a bright financial future. With the advancement in financial technology, many of you have been used to having ease of access to things on your fingertips. You easily get financial market information through various apps online or through news.

Similarly, digital financial literacy is the new way of learning. There are several online courses that enhance your financial knowledge. You need to choose wisely as per your requirements, financial knowledge will empower you to be more responsible towards your finances and become your own financial planner.

To adapt with the changing environment you need to have a higher level of financial superiority to make effective use of fintech products and services, and avoid fraud and investment mistakes. Well, now you have an idea of how financial literacy is important for a bright financial future.

Financial literacy is something you can share with your family by becoming their financial guardian and guide them in making informed financial decisions. The best part about being financially literate is that, it will help you to navigate through any financial situation and make worthy decisions for a bright future.

Start your financial literacy journey with us!

This article first appeared on PersonalFN here