Financial Literacy: Why is it important?

August 19, 2023, by Benjamin Mbaisa

Financial Literacy: Why is it important? by Benjamin Mbaisa

Financial literacy is the knowledge of how to make smart decisions with money. This mainly includes preparing a budget, knowing how much to save, deciding favourable loan terms, understanding the impacts of credit, and distinguishing different vehicles used for retirement.

Although the term financial literacy sounds difficult to grasp, the focal point of it resides briefly in the possession of skills that allow people to make smart decisions with money

To shade more light on it, Jason Fernando, a professional investor and writer who deals with complex business and financial problems, described financial literacy as the ability to understand and effectively use various financial skills, including personal financial management, budgeting and investing.

If one is financially literate, He/she has the foundation of a relationship with money, and it is a lifelong journey of living. The earlier you start; the better off you will be because education is the key to success when it comes to money.

A strong foundation of financial literacy does not only help people to support their life goals but also cushion them from “financial fraud”, a persisting issue which has developed turmoil in this world.

 How can one understand Financial Literacy?

From about 2000 to 2002, financial products and services have become increasingly widespread throughout society, whereas an earlier generation of US residents may have purchased goods primarily in cash; various credit products are popular today, such as credit and debit cards, and electronic transfers. A 2021 survey by the Federal Reserve Bank of San Francisco revealed that 28% of all payments were via credit cards with only 20% being in cash

Lacking financial literacy can be very damaging to an individual’s long-term financial success. Even so, research shows that financial illiteracy is very common.

Being financially illiterate can lead to a number of pitfalls, such as being more likely to accumulate unsustainable debt burdens, either through poor spending decisions or a lack of long-term preparation. This in turn can lead to poor credit, bankruptcy, housing foreclosure and other negative consequences.

So, are there any benefits to Financial Literacy.?

Yes, there is, historically the benefit of Financial Literacy is to empower individuals to make smarter decisions. More specifically, financial literacy is important for a number of reasons.

  1. Can prevent devastating mistakes
  2. Prepares people for emergencies
  3. Helps individuals reach their goals
  4. Invokes confidence etc.

So how does Financial Literacy prepare Africa's youth for the future.

Apart from the contribution to poverty alleviation, recent trends in the digitization of financial products and services, and the increase in tender and microfinancing have proven that financial literacy could be or is an essential tool to survive. Simple access to capital and the numerous financial literacy and skills could lead to detrimental consequences for an individual and their economy as a whole. This concern must be addressed by policymakers, financial service regulators and all stakeholders involved.

Financial Literacy Generally in Africa.

As there are some disparities in terms of economic and human development between African countries, the greater majority of the population in African countries relatively have low financial literacy levels

Financial literacy is vital to one's financial success and that is why an effort has to be made to improve it and prepare Africa's youth for the future. As said earlier on, it helps one budget, manage debts and create a savings retirement plan.

Some ways to improve your Financial Literacy

1. Subscribe to financial newsletters.
For free financial news in your inbox, try subscribing to financial newsletters from trusted sources. You can explore a large variety of topics and gain expert insight into current events and personal finance trends.

    2. Listen to Financial podcasts.

      Podcasts can be a great way to soak up financial news while you do housework, run errands or walk the dog. You can find an option that suits your interest on most podcast apps and music streaming services and hear directly from financial experts.

      Learn practice tips for managing your money, simple explanations on financial topics and how to build financial literacy as a family. Among the best financial podcast are the “bigger pockets money podcast” which is hosted by Mindy Jensen and has 465 million listeners. Mindy strictly offers advice on life and money while the "Clark Howard podcast” aims to empower people to control their finances.

      3. Read personal finance books.

      If you prefer books, there is no shortage when it comes to learning about personal finance. Explore the insider's list of best personal finance books to find the top reads for budgeting and saving basics, paying off debt, advice for first-time investors and strategies for building wealth. You can choose from Robert Kiyosaki's ”Rich Dad and poor dad”, the intelligent investor by Benjamin Graham and “The richest man in Babylon” by George Samuel.

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