Financial Literacy and its Importance

Financial Literacy and its Importance
Skilledwise 26 Dec 2021

You must have been hearing the term financial literacy quite often. However, some don't know the exact idea behind this. Many believe that it is related to finance while others keep wandering only being perplexed about it. The point is, why is there such a dramatic spike in financial literacy?

If you are facing issues with these kinds of inquiries, you have just found a solution. This article might serve as a helpful guide for financial literacy and its significance. Through this, you may get a glimpse into the world of prosperity and opportunity.

What is financial literacy?

We may define financial literacy as the understanding of finance, debt, and credit management that is required to make sensible financial decisions. It makes the notion of making the best use of money more feasible. Individuals must understand the concepts of saving, investing, taxation, checks, and budgeting. These components of finance are essential to the success of life. Financially literate people will be able to make better financial judgments. It makes their lives easier.

However, we can't argue that financial literacy is only determined by one's degree of education or wealth because there are several cases of millionaires who went bankrupt in a matter of seconds. The cause of this was a lack of financial literacy. Financial literary is also helpful for children and students studying or working in any organization. This concept assists them in maintaining a saving discipline.

Importance of Financial Literacy

Importance of Financial Literacy

Financial markets are complicated and go much beyond the idea of only saving. Therefore, if youngsters grasp the idea of financial markets at a young age, they will be less likely to invest in improper financial instruments later. To prevent those, here is a walk through to exploring the importance of financial literacy.

  1. Easy to make financial decisions: It becomes easy to make financial decisions on your terms if you are financially educated. As a result, you are more likely to make sound financial judgments than someone who has little or no financial literacy.
  2. Tension-free retirement: Whether you run a business or work for one, selecting the right retirement savings plan is always a better decision. Pensions are becoming outdated nowadays, particularly for young workers. The appropriate retirement plan can keep you out of the problems that many individuals’ problems once they retire.
  3. Investing and saving are becoming increasingly complicated: The world is expanding faster than ever before. As a result, choosing an investment or savings product is more complex than in the past. People are not much educated to select among several choices with variable maturities and interest rates. Financial knowledge might also assist you in conquering this issue.
  4. Changing Financial Environment: Trading activity was unheard of a few years ago, but it is now the standard. You may now purchase and sell stocks from the convenience of your own home or workplace. Today, having up-to-date information is vital.
  5. Money should be spent with caution: Children must learn that they are in charge of their accounts and financial literacy. They should know where, when, how, and why they spend their money. Stores and brands sell comparable items at varied price levels. They should know how much items and ventures vary in price and how to use logic to choose the best purchase. It should also be feasible in the market.
  6. Keep individuals away from getting into too much debt: Too much debt may get us into various difficulties. We can calculate how much debt we can afford to pay if we are financially literate, especially if we have payments for mortgages and insurance. It will also teach us how to save for children's schooling, future needs, medical and hospital expenditures without borrowing money.
  7. Enables the transfer of financial literacy skills to the next generation: Financial literacy will assist us in securing the future of the next generation. We can educate children on how to budget and save for the future. Even at a young age, they may also see how hard their parents work to meet all of their requirements. Helping children understand the value of financial literacy will also teach them discipline and respect for their parents. It will also teach children that they should eventually be financially self-sufficient. As a result, they will be more responsible and resourceful.
  8. Financial knowledge helps in better emergency planning: We all have times when we need cash or a large sum of money to survive or overcome financial and emotional challenges. Being financially adept, we would help us in borrowing money that will only cause further issues.
  9. It enlightens on how to invest and generate revenues :Investing in equities and generating income streams in addition to our wages are outcomes of financial knowledge. Relying on a single source of income will keep us in a position where we must always make ends meet. In addition, having numerous revenue streams will give us confidence to endure financial difficulties.
  10. Opportunity to contribute to the growth of our country's economy: When we invest a portion of our money, say, in stocks, we assist the firm wherein we invest in creating new employment. It means increased employment and a greater role in the development of a more progressive nation.
  11. Opportunity to aid those who are less fortunate: It allows sharing our blessings with others in need. It is because we can spend our money more carefully and save a portion of it for investment, business, and retirement. We may then donate a portion of our money to people in desperate need of assistance. Helping others provides us with a sense of fulfillment that is truly valuable.

So, these ideas may be sufficient to convince you of the value and necessity of financial literacy.

Significance of finance in student’s life

Significance of finance in student’s life

When a student joins college, they enter a new stage of independence in his life and usually begins to build his financial management practices.

Here are some short notes about the significance of money:

  1. Money management and financial understanding have a significant impact on the stages that every student takes from graduation to retirement.
  2. Choosing a career, getting married, or purchasing a home all include financial considerations.
  3. Financial knowledge aids in the prudent use of resources such as a credit card. It also aids in learning how to avoid becoming in debt.
  4. A lack of financial awareness can be a significant source of stress. Debt or a lack of money can be a source of difficulty.
  5. Poor financial management may lead to divorce, depression, health concerns, and even bankruptcy.
  6. Students who lack financial awareness cannot handle their student debts.
  7. A student who proactively controls the budget is more aware of the finances and can make better spending selections.
  8. Some students leave a course in the middle of a semester due to a lack of funds.
  9. If you have a debt and do not handle it correctly, it might ruin your reputation and civil standing.

Aside from the points mentioned above, there are many more. It is necessary to learn finance. It provides you with a better knowledge of things you would not see otherwise.



Finance knowledge is essential. The sooner you begin, the better the outcome. There is no age limit for learning, and studying from a young age is quite useful. The minds of students are expanding, and they are also enthusiastic about managing finance efficiently. Their way of life is determined by their decisions based on their knowledge. They will enjoy a decent living if they have a solid financial understanding. If they lack financial expertise, they may wind up with thousands of dollars in debt. Finance is vital if you own a business or work for one, or if you want to provide a better living for yourself and your children.