8 Reasons Why Financial Literacy Is Important

Last Updated on May 8, 2021

Why financial literacy is important. Girl reading a book on a rock. Probably not a book about financial literacy.

Today we’re going to talk about what is financial literacy and I’m going to give you 8 reasons why financial literacy is important!

Financial literacy is often taken for granted, yet it is one of the most important skills to have.

To many, this subject might be incredibly intimidating, filled with mindboggling terms and concepts not intended to be understood by mere mortals.

I’ll admit that the term ‘financial literacy’ might sound complicated. The word ‘literacy’ isn’t part of the everyday language and the word ‘financial’ can stir up repulsion in someone.

But you shouldn’t be intimidated by that.

Honestly, it all boils down to simple principles about which I’m going to point out in this guide.

What Is Financial Literacy?

The concept is pretty simple.

Financial literacy means that you can understand basic financial concepts and are able to manage your personal finances.

It is the difference between living paycheck to paycheck and being able to afford the things you want and need.

You should be knowledgeable enough to feel confident in making the right decisions when managing your personal finances, and all the effort that goes along with them.

To name just a few, you should know the difference between saving strategies, you should be able to make a budget and understand some of the general basics about taxes.

Does this mean you have to become a financial expert?

Nope, not at all.

I think what is important is to feel confident in making the right financial decisions for your particular situation and to be able to build the wealth that suits you.

Why Is Financial Literacy Important?

Financial literacy is important for several reasons.

It Protects You

You are less likely to fall into various financial traps unknowingly. Teaching yourself about money means arming yourself with knowledge and skills that will assist you to make informed decisions when it comes to financial matters.

Scientia Potentia Est

It is a Latin aphorism meaning “knowledge is power” or “wisdom is power”.

The more information you have about finances the better prepared you will be in the face of upcoming challenges.

Why do we go to school to learn about math, science, history, and other subjects?

The main reason is to gain the skills and education needed to live autonomously and successfully. Similarly, financial education should be given the same priority.

I think every functional member of society should know how money works.

You Are Less Likely to Pick Up Bad Financial Habits

I surely can make a bet you know at least one person who’s gambling and complaining they have no money to even put food on the table.

Such deviant behavior occurs because that person had no or poor background in financial literacy.

They can be easily persuaded by others to engage in other bad financial habits.

Someone who is financially literate is less likely to pick up bad financial habits and be financially influenced by others.

It Helps You Understand the Value of Money

Someone who understands the value of money is able to handle finances in a better way.

Do you think adults really understand the value of money?

I don’t think so.

An adult who understands the value of money is thoughtful when it comes to spending and does not fill his or her house or life with things he or she buys with the last money from his or her salary.

And I know way too many people who do just that.

And it saddens me.

Because they believe they can buy their happiness by spending money on things that bring them temporary satisfaction. And when I say temporary I mean a few days or at most weeks.

Keeps You From Being a Debt Slave

If you are financially literate you are able to determine if you’re spreading yourself a little too thin.

This is huge because it means you will only burrow that which you are able to pay.

Surely you’ve met or heard about people who bought luxury cars or homes which they didn’t manage to pay.

Allows You to Invest and Build Wealth

Simple enough, people who are financially literate are more successful in investing and generating more wealth.

It’s a recipe for disaster if you have a lot of money and you don’t know how to manage them properly. In time you will lose them and you will end up on extremely unpleasant grounds.

On the other hand, if you’re financially literate you know how to manage money, invest it and build more wealth.

Allows You to Thrive, Not Survive

With increased financial literacy, you will be able to transition from surviving to thriving.

According to World Poverty Clock, there are currently about 700 million people living in extreme poverty.

It’s estimated that the number of people living in extreme poverty will decrease by about 20 million a year in the following years.

I think it’s still encouraging news, but I think we can do more.

In economics, there’s this thing called the cycle of poverty.

This occurs when poor people do not have the resources necessary to get out of poverty such as financial capital, education, or social resources.

As a result, this may increase their poverty and could mean that the poor remain poor throughout their lives.

Most countries fail to provide opportunities for many individuals to leave poverty, with one of the most important being the widespread lack of financial skills.

It Encompasses Just About Every Aspect of Your Life

Lots of the hard times that people will have in their families and marriages are going to revolve around money.

In the world we live today, everything revolves around money.

So it’s everybody’s benefit to know as much as they can about money so that they can at least give themselves some type of stability in the future.

Conclusion

Financial literacy doesn’t mean you have to spend years studying complex math or creating graphs.

Hell, you don’t need to be an economist to understand how to manage your income and expenses.

But as shown above, your level of financial literacy affects your quality of life significantly. It affects your ability to provide for yourself and your family, your attitude to money and investment.

As a matter of fact, whatever you want to do in life, financial literacy will get you there faster.

Ideally, with strong financial literacy, you’ll be confident in money management to the point where you can focus your energy on things you cannot buy.

Financial literacy is not a luxury—it’s a necessity.


🙏 Thank you for taking the time to read the whole article. I hope you found it useful!

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Why do you think financial literacy is important?

 

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