Financial literacy is an ability to procure knowledge and set of skills so as to take your money management decisions effectively.
It’s crucial for everyone to have at least a basic understanding of finance which would help them in making their personal finance decisions effectively. Nobody can become wealthy if they just lead the normal life of a salaried individual and save a part of their salary in their bank accounts. There is a concept of active income and passive income which should be understood by the individuals so that they can aim to get wealthy over a certain period of time.
Active income is the income what we earn by working on a day to day basis. On the other hand, passive income implies to the money which we can accumulate over a period of time if we invest our savings in productive ways. The concept of passive income is equally important in fulfilling our financial need and to achieve our financial goal. Thus becoming financially literate would help us work on the later concept.
Following are the reasons for an upsurging need for financial literacy in India and worldwide:
- Understanding the concept of money– The end result of whatever we do in our daily life is related to money. Money is what money does. Everybody has a dearth to make more and more money and to make their life better. In order to diversify your source of income, it’s important to have a good understanding of money and money related products. Everybody does some or the other thing to make money but managing it and preserving it is equally important otherwise it might simply fly away from you.
- To become financially independent– If you are one who doesn’t like to work under someone and want to be your own boss, then finance could be a better choice for you where you may also earn by sitting and working from home. Learning is a never ending process and you need to keep acquiring knowledge regularly. Benjamin Franklin once said, “An investment in knowledge always pays the best interest”.
- Fulfilling long term need– Financial education is one such area, the investment in which will pay the best interest in long term but unfortunately it is perhaps one of the most neglected aspect of our education system. By becoming financially literate and understanding different modes of investment, one can fulfill their long term need.
- Educating parents to guide their children– It is said that learning begins at home and children learn whatever their parents teach them. It is the duty of parents to sit with their children at regular intervals, interacting with them and also guide them in acquiring financial knowledge. There are many parents who are either less qualified or don’t have much idea of finance, so it is very important for them to gain financial knowledge so to improve their own understanding and also of their kids.
- Understanding different areas of finance– Finance is a very wide term and it’s an ocean comprising of different areas. It ranges from basic financial knowledge like primary and secondary market to advanced concept of equity, debt, currency and commodity markets. It also includes various financial products like mutual funds etc. Most of the time people depend on others for some tips and are often misguided. So it is equally important to choose between right and wrong and stick to what is beneficial to them.
Making financial decisions are important to everybody no matter whether they are a Science graduate or Information technology expert. We all need to plan our financial decisions whether it’s a long term investment or a short term need. Studies show that most of the Indians are unable to answer basic financial questions like what does rate cut imply or its impact on the economy and so on. Thus there is a widespread need to spread financial literacy in the country.