- April 26, 2021
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Financial literacy is becoming more and more important as it is considered even more imperative especially for those who are not proclaimed investors. It becomes necessary and essential for the whole family and for every household that tries to balance the family budget, to buy a house, to finance the education of children or ensure a comfortable retirement.
People have always been in charge of managing their financial resources, but times are changing and consumers no longer have to choose only between two different loan rates or savings plans, but have to choose between complex investment plans for lending, saving or investing with options that involve a variety of investment risks. In order to be able to save or invest, one does not have to only be very careful in the way they spend, but also be informed correctly in order to be able to manage their financial resources without hesitation.
Financial literacy is the medium for one to be capable of acquiring the necessary knowledge and ability to make serious and correct decisions for the management of their financial resources. It is also considered as the most profitable investment for consumers but also for organizations that offer financial products and services. The aim of the consumers’ education, adults and minors alike, is to provide the necessary information, knowledge and skills to be able to evaluate options and select those that are within their capabilities to meet their expectations. Financial education is also essential because it will help consumers not to choose trades that may be harmful to them, they will learn how to avoid any scams and in addition they will know how to exercise their rights as consumers.
Financial knowledge empowers consumers to become better buyers by allowing them to buy products and services at a lower cost, with thus improving the family budget by ensuring greater purchasing power and the opportunity to save more and invest. In addition, financial and economic knowledge provides consumers with the necessary supplies to plan and stick to their household budget, their savings plans, manage their debts and make the right investment decisions for their children’s education and their own retirement.
Financial illiteracy though could lead to issues of income inequality. The economic crisis has resulted in wealth (including real estate, deposits and stocks) being distributed even more unequally worldwide. In Cyprus, but also at European level, households with comparatively higher incomes seem to have been further benefited from the economic recovery than households with lower incomes.
Financial literacy is also crucial for more developed economies, helping ensure consumers save enough to provide an adequate income in retirement while avoiding high levels of debt that might result in bankruptcy and foreclosures.
Here are the concepts that consumers need to learn to become financially literate:
- Budgeting: The recording of revenues and expenses expected in the near future or/and the assessment of the possibility that an economic unit (family, business, etc.) has to incur some expenses.
- Emergencies: A family should and/or organization keeps some money through their budgeting system in case of any type of emergency
- Getting out of debt: The simple definition of debt is money owed to a person or organization you’ve borrowed money from, with the intent or requirement to pay the money back. Some debt is considered good and some debt is considered bad. The type of debt you have, and the amount of debt, partially determines your credit standing.
- Starting an emergency fund: An emergency fund is a bank account with money set aside to pay for large, unexpected expenses, such as home and home appliance repair or replacement.
- Starting a baby emergency fund: A baby emergency fund is a bank account with money set aside to pay for birth and baby expenses or unforeseen medical expenses.
- Investing part of your income in retirement or life and medical insurance: Make sure that no matter what happens around you later in life, you will have enough money to live comfortably after you retire.
- Saving for college: A plan that allows individuals to set aside money in a special account designed to pay for future college expenses.
An extremely good on-line education program that frequently provided new modules on financial education was Dolceta (https://europeanconsumersunion.eu/progetti/dolceta/?lang=en/), a European Consumer’s Union (https://europeanconsumersunion.eu/?lang=en) program that aimed in raising the level of awareness and understanding of European consumer rights in the Member States and to develop interactive web-based tools for consumer education to be used primarily by ‘multipliers’: teachers, trainers and adult educators in educational institutions, government bodies with consumer responsibilities, consumer associations etc. The web site is of course also available to individual adult consumers directly.
Overall, training in financial literacy should be become a part of school curricula, to help raise young adults who will know and understand how to save more money, find the ways to earn more profits and be debt free. Improving consumers’ financial literacy can also help them to assess the best products and services for their individual needs and also enable consumers to choose and compare financial products more effectively and easily.