Financial education definition
Financial education refers to the teachings that bring about financial literacy. Such lessons aim to teach individuals how money works, how to manage money, and the art of investing. The teachings also instil skills and knowledge that enable them to make sound financial decisions. Financial education is often available in schools, places of work, and the larger community.
Since financial education is a precursor to financial literacy, the latter, therefore, relates to the understanding and knowledge of concepts and risks surrounding finances and money. It also alludes to the skills and motivations that enable individuals to apply what they learnt in order to make informed and sensible decisions.
Components of Financial Education
It is important to begin to study something as early as possible. Nonetheless, the key problem is that people don’t know, how to begin.
In every sphere, it is crucial to begin with main principles. Thus, your personal financial education should begin from the following components.
Investment Opportunities and Strategies
The availability of multiple investment instruments such as mutual funds, annuities, cryptocurrencies, forex, and stocks implies that people now need to make more difficult choices than was the case before. The myriad of choices at investors’ disposal may be confusing. This, therefore, necessitates education about the investment opportunities and strategies that these individuals should use to ensure that they realize a return on investment.
The shifting dynamics of the financial and labour markets make budgeting important. People, now more than ever, are finding it necessary to work multiple jobs. This decision is informed by factors such as the high cost of living which increases expenditure and the need to repay debts such as credit cards, student loans, and mortgages. Budgeting aids in the allocation of money for different financial products available in the market.
In this regard, it is crucial to plan how to use money and where to allocate your income. Budgeting also helps to keep you accountable in terms of establishing a clear path of where your money is coming from and where it is going. To this end, many budgeting tools are available online which will help to track your finances.
An individual could save in order to purchase a home, educate children, and plan for retirement. Saving is crucial because it eliminates the chances of financial stress when the money situation changes. It also enables people to accomplish their financial goals and objectives a factor that boosts their quality of life. It makes them more confident in the face of circumstances that life throws at them.
Safety and Security
The growth of technology exposes people to dangers such as hacking and identity theft. This implies that without taking the necessary precautions, it is very easy for an individual to lose money or savings. To this end, it is crucial for people to learn about the importance of protecting themselves. Protective measures learnt from financial education include the need to use strong passwords and not sharing such sensitive information online. It is also advisable for people to have different passwords for their multiple accounts.
Debt and Interest Rates
It is important for individuals to learn the sustainability of debt. One of the ways of assessing this fact is by probing the amount of interest to be paid and the period after which it is charged. Expensive loans have high-interest rates. Consider this scenario. An investor has invested in a bond that earns a 7% interest rate annually but has subscribed for credit card services that have a 10% interest rate annually. Analysing the debt vis-à-vis the investment earnings makes it unsustainable. The returns from investment are overshadowed by the additional charges required to repay the debt. In this regard, the individual is likely to continue wallowing in the cycle of debt with no end in sight. Financial education, therefore, also provides lessons on debt and interest rates.
Conclusion: Reasons to Improve Financial Literacy
Financial education leads to financial literacy. Possessing the skills required to effectively manage money and make informed decisions that enable the realization of financial goals is important. In this regard, individuals should endeavour to learn more about saving, debt, interest rates, budgeting, and investment. This financial knowledge comes in handy when you are starting your own business or when making other life-changing choices. Notably, such lessons are available online, in school, or at workplaces. The ubiquitous nature of the internet means that one can access this information from any part of the world.
Financial literacy refers to the knowledge and understanding of the concepts and risks associated with money. It also relates to an individual’s ability to apply this knowledge to make informed financial decisions.
It helps investors make informed investment decisions. It helps people plan their income and expenditure effectively. It also helps them save for their retirement, families, and homes and also enables them to understand the best practices that safeguard their money and wealth.
Financial literacy is an outcome of financial education. As such, in order to become financially literate, a person should take lessons on financial education. Such teachings are available online, at school, or in workplaces.
Everyone. Due to changes in the world as a result of the evolution of time, individuals are now more responsible for their personal finances than was the case in the earlier years. They are required to make plans about their future (retirement and pension), saving, investing, and budgeting their current expenditure. These reasons make financial literacy skills crucial for everyone.
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