Are we financial illiterates?
The most fundamental reason why you should strive to become more financially literate is to help yourself to reach your personal financial goals. It can prevent you from falling into a debt hole and at the same time act as the ladder to climb out of it.
LET me begin today’s column with a question: Do you consider yourself financially literate? Before you answer this question, let me borrow some fact from a latest financial literacy levels survey, the findings of which revealed that Indian’s financial literacy level is much better than others. This survey from ING shows that India Ranks at no. 2 out of 10 leading nations. Even as India is better from others, but internal scenario reveals that 90% don’t even know what Financial Literacy is.
Extracts from this financial literacy survey also reveal that 87% of Indian had emergency corpus of more than two months. This is nothing new as most of our people have a “cash fancy” and they keep the cash in saving accounts, suitcases, almirahs, and even in pillow covers. Globally, as the survey reveals, the problem is only 27% people admit that they do not know where to start. Others keep on postponing, do not find it interesting, do not have time or badly need help.
What is this financial literacy? Let’s look into its meaning. Financial literacy refers to the knowledge required for managing personal finance. It does not refer to formal education in finance. Instead it encompasses an understanding of how to use credit (loan amount) responsibly, manage money, minimize financial risks and derive long-term benefits of savings and investing.
We know consumerism has spiraled us. Today, when most of us think about transportation, we think about owning most expensive car. Moreover, what we have observed that a large percentage of people take course of credit to improve their lifestyles and spend significantly beyond their means. It’s basically the easy availability of money through various credit facilities that has fueled this phenomenon. Obviously, this has led to a situation where the distinction between needs and wants has become hazy. The end result is that these tendencies finally lead to substantial debt. Once a person is in the debt trap, it is extremely challenging to come out of it.
It is here that financial literacy can prevent a person from falling into a debt hole and at the same time act as the ladder to climb out of it. Please note it: ad hoc endeavours cannot lead to financial wellbeing. Rather it is saving early and saving often that holds key to financial wellbeing. One does not have to be rich to achieve financial stability. Financial literacy and planning is all that is needed.
The most fundamental reason why you should strive to become more financially literate is to help yourself to reach your personal financial goals. Whatever the specific goal, the payoff to financial literacy is an improved standard of living and a sense of confidence about the future.
Financial literacy covers all aspects of planning your financial future. Setting financial goals, creating your budget, itemizing your expenditures, planning for high-budget expenditures (including buying a home), basics of banking (account types and interest rates), basics of investing (into stocks, bonds and mutual funds) etc are the areas which are included in this form of literacy.
Many a times, you may have come across words like financial planning. What is financial planning? It is the process of meeting your life dreams and goals through the proper management of your finance. There are two ways you can deal with finance in your life. One is without planning wherein at some point of time in future, you will have money and then you will decided how to use that for your goals. Another is with planning wherein you decide well in advance what your goals are and how you will achieve them.
Precisely, it’s financial planning which gives you more clarity in life. It provides direction and meaning to your financial decision. It helps you to provide right balance between your present and future lifestyle. Today, time is with you. But will you be able to continue at the same through out your life? Will your income be the same forever? Will you be able to live on your own terms even after you retire? Answer these questions and then think for Financial Planning. There is only one thing to remember. If you don’t plan your financial future, you are surely planning to fail in your life.
Coming back to financial literacy, let me share a quote from Alvin Toffler – an American writer and futurist. “The illiterates of the 21st century will not be those who cannot read and write but those who cannot LEARN, UNLEARN and RELEARN”. Similarly Financial Literates will not be those who know how to save but those who can achieve their financial goals & achieve financial freedom.
So financial literacy is the key to Financial Freedom. Being financially literate means that a person will understand his questions and will definitely understand the solutions.
To see more and more people get armoured financial literacy, the best thing is to catch them young. Financial education should be part of school curriculum to make dealing with money in real life easier. We know schools teach their students addition and subtraction and they teach them simple and compound interest. But what they don’t teach them is how this is immediately applicable to their bank accounts, and to income and spending once they start working.
As you all know that one of the very fundamental things that we deal with from childhood is money. Kids receive money from relatives as gifts, or they are sometimes asked to do a bit of small kitchen shopping. As teens, their need for cash increases and so do the demands they make to their parents. When they start working cash becomes king and continues to be so through out adulthood and in to old-age. So, in the backdrop of this process, why not our schools teach their students how to earn and manage this ‘money’ thing in a prudent way?
If this system of financial literacy is followed, the students coming out of this education scheme would understand the importance of every Rupee, how to earn it, grow it, account for it and manage it better irrespective of their parent’s financial education or socio-economic status. We would lay the foundation for a society where individuals can take responsible financial decisions as they move through college and life. So, we must catch them young, financially.
Meanwhile, the announcement of J&K Bank Chairman to establish financial literacy centres across the state is huge step towards financial inclusion mission of the bank which it is currently pursuing in the state. In the words of Mushtaq Ahmad, J&K Bank Chairman & CEO, “J&K Bank, conscious of its role and responsibility, is planning to establish financial literacy centres across the state of J&K”. We believe that people here need basic financial awareness to handle the business professionally. Besides, such awareness helps people across all business activities in taking viable decisions on day to day basis.”
Notably, financial inclusion and financial literacy are twin pillars. Financial literacy stimulates the demand side – making people aware of what they can and should demand, while as financial inclusion acts from the supply side – providing in the financial market what people demand. However, financial literacy and education should be developed hand in hand with improving access to financial services.
(The views are of the author & not the institution he works for.
Lastupdate on : Sun, 24 Apr 2011 21:30:00 Makkah time
Lastupdate on : Sun, 24 Apr 2011 18:30:00 GMT
Lastupdate on : Mon, 25 Apr 2011 00:00:00 IST
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