Financial literacy in its own sense means the possession of the set of skills and knowledge that allows an individual to make informed, effective and efficient decisions when dealing with financial resources.
Some examples of such skills include saving, investment, loan payment, budgeting, prioritizing, financial security and emergency fund. To be financially literate means to possess and establish the feeling of control over your finances while using money as a tool to freely make choices that build greater life satisfaction according to a 2015 report by the Consumer Financial Protection Bureau. (CFPB)
Some financial literate actions include; increasing retirement savings every time one gets a raise in income, maintaining three to six months’ worth of expenses in an emergency fund and replenishing it when you have withdrawn money from it, checking one’s credit report regularly, and having at least two sources of income.
The importance of being financially literate is that it saves you from having little or not enough income for emergencies, it helps one to establish a surplus budget for oneself, it also helps one to manage their money effectively especially with reducing the outflow of it and it also helps one to pay back debts in the shortest time possible without straining oneself.
So how exactly can we practice financial literacy? Good question, we can do so on a macro or micro basis in the following ways:
1. Understanding how much income one earns and spends and beginning by setting a budget by prioritizing and separating one’s needs from one’s wants.
2. Repaying debts and avoiding getting any others unless absolutely necessary. However, even when getting a loan, it should be with the lowest interest rates.
3. Protecting oneself from debt and bankruptcy by always having an emergency fund, or emergency money.
4. Working towards a secure retirement and also investing in profitable sectors which you have to understand first.
5. And last but not least, seeking help from a financial advisor.
It is very important that such skills are imparted from a young age so that one can be able to manage their finances well and also plan for a brighter future for themselves.
Kalazani Neena Elsie
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