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What Is Financial Literacy And Why Is It So Important?

Guest post by: Gary Baker

Article Overview: The definition of financial literacy is "having the knowledge, skills and abilities to undertake responsible economic and financial decisions and actions with a requisite level of competence." The recent global economic downturn has served to highlight our deficiencies in this area and has shifted focus to the need for financial education.

What Is Financial Literacy And Why Is It So Important?

The definition of financial literacy is "having the knowledge, skills and abilities to undertake responsible economic and financial decisions and actions with a requisite level ofcompetence." The recent global economic downturn has served to highlight our deficiencies in this area and has shifted focus to the need for financial education.

Self Assessment Tools

A simple questionnaire that establishes your current financial status is a great place to start. This will provide you with a greater understanding of what it is you do know and what it is you need to learn about money management.

When properly structured, self-assessment tools can assist you to develop your personal financial goals and to acquire a better sense of what you will need to make more informed financial choices. You can find a debt elimination/wealth creation questionnaire on my blog.

Money Management Basics

Mastering money management basics is crucial. Learning how to formulate and live within a monthly budget, building savings and creating wealth, planning for future financial needs, understanding how insurance products work are all key areas that should be addresed.

Components of Financial Education

• The importance of starting now!
• Time value of money and compound interest.
• Planning and budgeting.
• Credit and debit.
• Investment and savings.
• Implication of taxes.
• Protecting your money.
• Making your money work for you.
• Fraud protection.

The importance of receiving a good financial education, at any age, cannot be overstated. Get started along this path and continue to build momentum toward a future of financial freedom for you and your family.

I strongly believe that financial literacy, and a financially literate society, is necessary to survive the global economic crisis and ensure stable economic growth when we come out the other side.

International findings

An international study for the Organization for Economic Co-operation and Development (OECD) was published in late 2005 analysing financial literacy surveys in OECD countries. A selection of findings included:

* In Australia, 67 per cent of respondents indicated that they understood the concept of compound interest, yet when they were asked to solve a problem using the concept only 28 per cent had a good level of understanding.

* A British survey found that consumers do not actively seek out financial information. The information they do receive is acquired by chance, for example, by picking up a pamphlet at a bank or having a chance talk with a bank employee.

* A Canadian survey found that respondents considered choosing the right investments to be more stressful than going to the dentist.

* A survey of Korean high-school students showed that they had failing scores - that is, they answered fewer than 60 per cent of the questions correctly - on tests designed to measure their ability to choose and manage a credit card, their knowledge about saving and investing for retirement, and their awareness of risk and the importance of insuring against it.

* A survey in the US found that four out of ten American workers are not saving for retirement.

A simple and easy way to increase your financial literacy in less than an hour from the comfort of your favourite chair is to watch "The Conspiracy Against Your Money" DVD as this was also my first step in becoming financially educated and free. For further information please visit my blog.

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Article Tags: conspiracy against your money, creating wealth, financial education, financial literacy, wealth creation, wealth management



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