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Importance of Financial Literacy

Importance of Financial Literacy Photo

A lottery winner underestimated his expenditures because of a million cash prize. A rich man went bankrupt. An heir just sold the acquired property to quickly have cash. A mom was troubled by many mortgages. And an owner fell short of his budget in building his dream house which was about to finish.

Reflecting on those people, how wise do you consider yourself in handling your finances? Do you think there’s no need for you to have financial literacy? How important is it to be learned?

At the University of Maryland, it was claimed that “Financial Literacy is important, no matter what age group you belong to, whether you are just starting 5th grade, funding your college education, planning for a family or retiring. Financial Literacy will help you achieve your goals whether it is to own your own business, raise a family, or to retire to a desert island.”

Thus, making thoughtful and informed decisions about your finances is more important than ever.

With financial basic trends presented below, you would fully comprehend the importance of financial literacy.

Budgeting

It teaches you how to spend your money wisely. For example, coming up with the list of expenses and have it totaled will make it easier for you to fully budget your money and to differentiate the goods you really need and you just want. With financial literacy in budgeting, you become wiser on spending money. It helps you get rid of out of budget payments and avoids you from falling short of allowances. Furthermore, it gives you the ability to use credit responsibly.

Saving

Financial literacy inspires you to save whenever you have an extra left out of the total expenditures. It could be better in allotting amount in your budget list, but always prioritize savings first.

                                    [Income-savings=budgeted expenditures]

Savings should be visible and very real. Some financial institutions have kids clubs so parents and guardians are encouraged to help kids open their own bank savings account and make regular savings.

Importantly, it teaches to initiate family talk and discussion about the need for budgeting and spending very responsibly.

Borrowing and Investing

Financial literacy inspires you to grow money through engaging business. With strategies and methods, you are taught how to carefully plan your investments. In economic terms, the advantage of borrowing for an investment in future wealth is most beneficial to those who have a long earning horizon, namely the young college graduates.

Purchasing

This is all about acquiring insurance plan in case of emergency, sudden death, accidents and destruction of property. Security as part of your finances assures your future.

Fraud

It may not prevent bankruptcy, but it will give you better tools to make wise financial decisions especially in keeping your money safe. Financial literacy educates you how to avoid scams, swindlers and fraud.

Credit

It helps you to properly manage your money and budget as you engage in loans. Some people are burdened with debts because they just borrowed money they aren’t capable of paying, and even though they know that the amount exceeds with their income.