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In the money world,
The term “financially literate”— or a related derivative—gets tossed around quite a bit. Not a whole lot of experts actually take the time to define exactly what financially literate means, leaving many statistics related to money habits void of their importance. Kids especially need a definition as they learn how to handle funds, because without it, they don’t know if they’ve reached the goals you want them to hit.
On the most basic level,
Financial literacy is simply about being knowledgeable. It means that you understand fundamental facts about money, such as the value of cash coins or bills. You also grasp standards and routine practices, such as the fact modern people generally pay for things with plastic (debit or credit card). With this information, you are able to follow most everyday conversations about money.
Research studies across,
Countries on financial literacy have shown that most individuals (including entrepreneurs) don’t understand the concept of compound interest and some consumers don’t actively seek out financial information before making financial decisions. Most financial consumers lack the ability to choose and manage a credit card efficiently, and lack of financial literacy education is responsible for lack of money management skills and financial planning for business and retirement.
Most potential retirees lack information about saving and investing for retirement. Many people fail to plan ahead and they take on financial risks without realizing it. Problems of debt are severe for a large proportion of the population because of financial illiteracy. Youth on average are less financially capable than their elders.
Financial education,
Benefit consumers of all ages and income levels. For young adults just beginning their working lives, it can provide basic tools for budgeting and saving so that expenses and debt can be kept controlled. Financial education can help families acquire the discipline to save for their own home and/or for their children’s education. It can help older workers ensure that they have enough savings for a comfortable retirement by providing them with the information and skills to make wise investment choices with their individual pension and savings plans. Financial education can help low-income people make the most of what they are able to save and help them avoid the high cost charged for financial transactions by non-financial institutions.
Decades ago,
when it was considered bad manners to discuss money matters with others and many people didn’t even finish elementary school, people didn’t seem to have trouble grasping the basics of money management. People understood very clearly the need to live within their means and save for the future; not just because they lived in a cash-based society where solvency was admired and debt was frowned upon, but also because they had no real alternatives. When you’re paid in cash and you have no credit options available to you, the choice is pretty simple: you either live within your means or you go without.
Fear is a powerful motivator and, while I’m sure that there were plenty of people living pay cheque to pay cheque, I’m willing to bet that there were plenty more living within their means and building solid financial foundations in order to make sure they didn’t run out of cash. Then, in the 1980’s and 90’s, with the introduction of credit cards, an alternative approach to money emerged. Credit gave people the option of an easier path that removed the need to save and live within their means and offered them the opportunity to purchase experiences and products that might otherwise have been out of reach. It’s a tempting offer, and one that proved hard to resist. Human beings are hard-wired for pleasure and it
takes a greater degree of willpower and motivation to take the fiscally responsible path rather than the fun and easy one. Not surprisingly, as credit became more readily available and more socially acceptable, there was a steep decline in the amount people were saving and a sharp increase in the amount of debt they were carrying.
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