Have you always maintained a piggy bank? Did you always enjoy keeping a record of your finances? And have you always been the kind to save for bigger and better things rather than being a spend-thrift? Then it’s time you acquaint yourself with financial literacy.
What is Financial Literacy and why is it so significant?
Financial literacy refers to the ability to understand and manage financial resources effectively in the long run. Knowledge, awareness and understanding of money-management and one’s finances provides a life-long yardstick to save better, invest smarter, and ultimately achieve financial stability. Financial literacy and education is a core life-skill that could aid students at every stage in life, as they branch out for higher studies and eventually build careers.
However, despite its cruciality, when it comes to financial literacy, India actually ranks the lowest among all the BRICS nations, as per a survey conducted by National Center for Financial Education in 2019. Similarly, according to a recent survey undertaken by the Securities and Exchange Board of India, only 27 per cent of India’s population is financially literate. While parents attempt to teach their children about managing money by opening a bank account for them or even gifting them piggy banks, financial literacy is rarely encouraged within schools. Therefore, the concept severely lacks institutional rigor in India, rendering students unaware and unprepared. The gap in financial literacy in the developmental stages results in a larger pitfall for the youth.
In this day and age, as we observe the world turning digital and the rise of entrepreneurship, crypto-currency and blockchain – developing financial literacy in school students has become invaluable. The pandemic compelled everyone to “manage their own finances” inevitably, and the experience highlights the significance of financial literacy in India. Thus, being able to manage one's own finances should be considered a prudent and transformative skill.
Over the past few years, a wide range of personal finance digital and mobile applications have emerged to assist users to streamline, categorize and manage their finances better. These apps also provide guidance on investment and surplus-generation. However, relying on these apps alone, without any foundational knowledge, can prove to be counter-productive. Financial ‘literacy’ is a skill that can be developed through concentrated learning of the varied layers that form the financial world.
The key components of Financial Literacy
- Budgeting: Your first step towards attaining financial literacy should begin by keeping a record of where your money is being spent – the classic art of budgeting. You don’t need to master Mathematics, Statistics, or any other disciplines to master budgeting. You can simply go old school and keep a pen-and-paper budget or utilize any of the several online resources and apps available for the purpose. Some apps meant purely for budgeting include Mint, YNAB, PocketGuard, among many others.
- Saving: The most essential aspect of financial literacy, and perhaps, the biggest advantage of having financial literacy, is the ability to save. Saving is something that young students often ignore. However, eventually most people realize that saving is often the sole way to create surplus (profit). The ability to save comes from diligence, practice, patience, starting small, until you eventually start observing massive progress in your personal finances.
- Understanding the language of finance: Starting from how to make a transaction, to how to effectively start a mutual fund: becoming financially literate includes educating yourself about the various facets of finance and how they work. Some of the most fundamental parts of finance include banking, interest rates, credit and debit cycles, loans, profit generation, financial security and safety, and the like. Understanding how money controls us and how it can be controlled directly translates into financial literacy.
- Investing: The final step of financial literacy is developing the ability to invest effectively. Investing and generating wealth has taken various shapes and forms in the present time and is becoming increasingly relevant. The global community is beginning to invest, regardless of their age or even financial status, with the help of financial literacy.
Financial literacy as a skill can potentially help students to take a step towards independence and self-reliance. It will also empower them to manage their smaller expenses, their student loans, and ultimately, their overall financial well-being.
To celebrate World Youth Skills Day, The Telegraph Edugraph brings Skillfest 2022 to enable and empower young students. The contest is open to students in standard VIII-XII. The last day to submit entries is 13th July 2022.
Click on the link to apply: Skillfest 2022