What is Financial Literacy?
Financial Literacy is the ability to understand and apply various financial skills, including personal financial management, budgeting and investment. It helps individuals to become self-reliant so that they can achieve financial stability. Financial Literacy is the ability to understand and apply financial management skills properly. Effective financial planning, proper management of debt, correct calculation of interest, and understanding the time value of money are the characteristics of being financially literate. The primary principles of Financial Literacy include learning the budget, tracking spending, paying off debt effectively and planning for retirement properly.
Lack of knowledge of Financial Literacy can result in falling prey to fraudulent financial institutions and facing a financial crisis. Financial Literacy is the education and understanding of how money is made, earned, spent and saved, as well as developing the capacity to make appropriate decisions using financial resources. It means to say how to get money and how to use the money. These decisions include how to earning money, how to invest money, how to spend money and how to save money.
Use and necessity of Financial Literacy
Financial Literacy is useful and necessary for all kind of people of all kind of age groups and genders.
It is useful for students, parents, youth, girls, women, unemployed and all kinds of employed persons, salaried persons, employees, managers, employers and all other kinds of people.
For students, the knowledge of financial issues will lead them to plan for a better present and future life. Financially well literate students also guide their parents. The literate women and girls who are responsible for managing their household expenditures can manage their expenditures within the available income and most necessary expenditures.
It is also important for those who do not have permanent employment and regular income sources. To be able to live life comfortably even if they have no employment, such a person and the family attached to them need to have savings as well as a regular income.
Businessmen and entrepreneurs can also manage and grow their business and enterprises well if they are well educated in all aspects of financial issues and requirements.
Use of Financial Literacy to earn Income and survive
If any person is well aware and has good knowledge about Financial Literacy, it can be very useful to earn an income to survive well. What can be the income generation process? It can be useful to know information about income sources. For example, semi-skilled persons can rent a part of one’s own house, open a groceries shop, tea snack shop or do hairdressing, hawking, sell vegetables, open a tiffin center. All of these can prove to be effective measures. For the skilled individuals, remote work such as writing work, data feeding information work, home-based communication work or work such as plumbing, working as an electrician, marketing, working as an agent for any products and services can be useful and supportive to earn income. Those who are somewhat financially well can plan, start and manage their business. They can get job opportunities according to their ability and candidature. These are regular processes to earn regular income when there is no financial crisis in the market.
Financial Literacy useful to save income and control expenditure
If anybody is financially literate and has the knowledge to manage finance then they can set aside a certain part of the earnings for the savings account. This knowledge can lead them to saving income at a suitable pace. Savings accounts should be in the post office or Government banks so that the deposited money is safe and can be withdrawn easily if needed. They can also know that they should not give money savings to moneylenders, relatives or friends for the greed of more interest coming with more greed. If they are well aware then they will understand that such greed can cause them financial trouble.
Role of NGO in Financial Literacy
It is the moral responsibility of NGOs/voluntary organisations to give awareness and knowledge of Financial Literacy to all kind of masses including youth, students, unemployed and employed. As well as temporary workers such as daily wage laborers, drivers of rickshaws, autos, part-time truck and bus drivers, track vendors, street vendors, etc. NGOs can make them aware for connecting the needy and eligible people with Government schemes like Free LPG Scheme Ujjwala, Ayushman Bharat, Atal Pension Yojana, Pradhan Mantri Awas Yojana etc. For students and parents, the knowledge and information about scholarships and financial benefit of Government rebate schemes. For youth who are unemployed or studying in higher classes, information about schemes of unemployment allowance and other applicable information to various concerned youth seeking different options in their areas.
NGOs can organise awareness programmes in schools, colleges and institutions to make the students aware and guide them. The youth can be made aware and trained about this by organising group-based seminars and programmes in various areas. NGOs can create awareness and develop the knowledge of the people working in various companies, institutions and organisations through training campaigns, events and meetup activities.
Financial Literacy awareness for the benefits of savings
NGOs can help and guide the needy eligible and desired people to open saving accounts in the post office and Government banks. NGOs can guide them about saving for their old age time and other emergency expenses and make them aware of the importance of regular savings. NGOs can give such practical knowledge and awareness about how the pot fills up and how it becomes empty (a little goes a long way) by comparing the saving and expenditure of income and financial resources. It is one of the objectives of NGOs to spread awareness about Financial Literacy also so the people can be informed and survive if they have good finance knowledge at every required part in their life.
To instill the habit of saving in society and for specific sectors of people by giving the knowledge to reduce the unnecessary expenses of people is an important part of Financial Literacy.
Drawbacks of Lack of Financial Literacy and Knowledge
Due to lack of saving habits, even people with a good income have been seen many times becoming victims of a financial crisis. The main reasons for this are expensive and lavish habits. Such people can be found penniless during the last days of the month, even those who earn a lot, but due to the habit of spending unnecessarily, they face crises. Due to rapid flow shopping, excessive use of credit cards, lack of any monthly managed budget planning, even for those with good wages face financial crisis in the last days of the month and emergencies.
Habit and managed income-expenditure plan for safe future is possible if people Financially Literate
If there are some certain parameters followed then the people can live their present and future life in a well-managed way without crisis and better control their ability to survive in adverse or critical times of life when there will be a shortage of money. Excessive borrowing and lending habits can cause crisis and unhappiness. Managed budget planning should be done according to monthly income. A part of the income should go to regular savings. If it is necessary that budget planning should also be done for sickness expenses and old-age pension. In addition to savings, mediclaim insurance, accident insurance, life insurance, auto insurance should always be done. Let the people be aware that they should avoid investment markets unless they have sufficient knowledge of when and how much to invest in the business market including the stock market. If they are very fond of share market, then one can invest in mutual funds. If any person does not own a house, then they should make plans to buy their own house or flat on loan installments. It is sensible to make investments for the house by using loans according to their budget instead of buying an expensive vehicle. Before buying a lot of expensive brand clothes, shoes, it is important to pay attention to one’s savings. A list of essential and unnecessary expenses can be prepared to do spend only on the essentials and implement them on priority.
Financial Literacy useful for being better at Business and Entrepreneurship
Financial literacy is important for businessmen because it is the tool to manage their business and be successful.
If they can know about what they earn and can assess more options to get more earnings and profit.
Businessmen and entrepreneurs can protect their profit by monitoring financial records and credit rating.
To spend according to the duration of financial targets. They can asses about financial decisions to handle, save and invest based on priorities using suitable accounting concepts.
This can help them to know about the cash flow and profit, to manage debtors and creditors that will help them to know the clear financial status of their business and services. Due to the accuracy of transactions by well-informed decisions about implementation of the financial performance of their businesses, influence on business survival, business practices to achieve desired targets.
So Financial Literacy is a way that they can increase their savings and strengthen their financial condition by curbing their spending habits.