Becoming financially literate can help you with every aspect of your personal finances, whether you are creating a budget or evaluating a job offer. Financial literacy is critical to successfully plan for the future. And In India, the Finance literate rate is less than 5%. To be more educated about money and how to utilize money, India’s best faculty for finance himself came forward to teach them.
Learning where to go for information is a great first step for improving your financial literacy. In this article, CA Aaditya Jain tells what financial literacy is, the benefits of becoming financially literate, and 10 steps you can take for improving your financial literacy.
What is financial literacy?
Financial literacy refers to the ability to understand and apply financial management skills like investing and budgeting. It involves being able to understand financial principles and concepts like managing debt, applying savings techniques, planning for your financial future, understanding and calculating compound interest, and even understanding the principle of time as money. Financial literacy is essential for long-term financial stability.
Benefits of financial literacy
Financial literacy involves being able to manage personal finances efficiently and make appropriate, educated decisions about your personal finance. Some of the primary benefits of financial literacy include:
• Developing better spending habits
• Learning the value of a savings account
• Being able to communicate more effectively about finances
• Making better financial decisions
Developing better spending habits
Financial literacy can help you to stay cognizant of your spending habits. By tracking your spending, you can manage your bills, create budgets and make plans to save for long- and short-term goals. Because you know how much you spend, you will know how much you can contribute to your 401(k).
Learning the value of a savings account
By being financially literate, you will understand the importance of having savings account that you can use in the event of an emergency or major life event. You can start small by simply scheduling monthly deposits from your checking account into a savings account. By regularly putting money into a savings account, you will feel more confident in your money management skills and recognize the importance of investing in yourself.
Being able to communicate more effectively about finances
By becoming financially literate, you will be able to communicate with others about finance, accounting, business, or money management. You will also be able to understand documents that have financial jargon, such as credit card agreements, offer letters, or promissory notes.
Making better financial decisions
By being financially literate, you can make more educated decisions about mortgages, credit cards, and how to handle debt. You will be less likely to fall victim to predatory lending, fraud, and high interest rates. When you are financially literate, you have the skills you need to:
• Reconcile your bank accounts
• Pay off debt
• Manage your money responsibly
• Pay bills on time
• Plan for the future
How to be more financially literate
While it can take some time, there are some simple steps you can take to become financially literate:
1. Learn about money matters.
2. Use financial management tools.
3. Ask for advice.
4. Use your network.
5. Learn to budget.
6. Understand credit.
7. Create and manage a checking and savings account.
8. Understand debt and loans.
9. Invest in retirement.
10. Understand the risk of identity theft.
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