Why Financial Literacy is important
Just look at these facts:
50% of the UK population is considered ‘financially vulnerable’.
25 to 34-year-olds are more likely to be in debt.
More than 6 million Britons don’t believe they will ever be debt free.
Over 4 million people in the UK are thought to be in serious financial difficulty.
The average person in the UK owes £8,000 (on top of any mortgage debt).
Here’s the deal: Caring about financial literacy is important. Among other things, it helps you gain a solid understanding of financial concepts and effectively manage your money. Here are 5 key reasons why you should care about financial literacy.
1. You Deal With Money Each Day
Whether you’re spending or earning money, you will likely face some financial decisions every day. So, it’s important to know how to manage your money properly. Basic budgeting skills can help you keep track of your expenses. Having a budget can also keep you from overspending and help you grow your savings account.
2. Saving For Emergencies Will Be Easier
Only one in four Brits could afford a £1,000 unexpected expense with money in their savings account. This means that even the smallest unexpected expense can seem like a financially devastating situation. However, when you prioritise financial literacy, you’ll see how important it is to save for the unexpected.
“Tough times in society and your personal life can prove more than ever that financial literacy is important,” says Dorethia Kelly, a financial expert, founder & CEO of the #MoneyChat.
“The more we teach people the principles of money management, the more empowered they are in uncertain times.”
With a realistic budget, you can plan out your savings each month and even set up easy automatic transfers to ensure you’re responsible with your money.
3. Your Debt Amount Will Decrease
There are several reasons why we accumulate debt. One of the most common factors is that you may have loans that helped you afford an education, a car or a home. However, in order to pay those loans off, you’ll have to take the same steps as you would when paying off your credit card debt.
“I didn’t learn how to manage my money properly and had to consolidate my debt twice,” says Angelique MacArthur, a blogger and lifestyle mentor for millennial women.
“Now I’m constantly learning about financial literacy and building my financial IQ rather than avoiding the problems which make them grow larger.”
Improving your financial literacy can also help you understand how principal and interest payments work. This way you can create a debt repayment plan that works for you.
4. Save Money on Everyday Expenses
Do you cringe each month when you get your utility bills? We’ve all been there, and high bills for gas and electricity can certainly put a dent in your bank account. But all is not lost. If you want to keep your utility bills low, you can educate yourself on the best deals and switch to a better provider with no hassle.
5. Build Wealth Faster
In addition to saving more money and paying off debt more efficiently, financial literacy can help you build wealth faster. On the surface, it may seem like investing is risky and a losing game.
Yet, instead of being afraid of investing, you can learn how the stock market works and define important investing terms. This way, you’ll know what you’re doing when contributing to a 401(k) through an employer or opening up an Individual Retirement Account (IRA) on your own.
“Financial literacy is what determines your level of monetary wealth,” says MacArthur. “Many people believe that if they just have more money they will solve all their financial problems. The truth is, you have to have a solid foundation based on financial literacy so you can solve your own problems and meet your money goals.”
Are You Financially Literate?
When you are financially literate, this means you can answer basic financial questions. Some of those questions include:
How do I save more money on my utilities and broadband?
How much do financial experts recommend you set aside for emergency expenses?
What’s the difference between a credit card and a debit card?
How does interest work for loans?
How does inflation work?
How do mortgages work?
What’s the formula for determining your net worth?
Those are just a few topics to understand. But, to increase your financial literacy, you should continue to educate yourself. For example, you can read books to learn more about money, listen to financial podcasts and pay attention to financial experts. You can also consider attending financial literacy events (even online events are a great option). This way you can learn about specific financial concepts from a professional.
Are you ready to become more financially literate?