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TT-Clean: 77.1 | TK BC-Selling: 78.1
TK OD-Sight: 76.88 TK | TC-Selling: 78.1 TK

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TT-Clean: 77.1 | TK BC-Selling: 78.1
TK OD-Sight: 76.88 TK | TC-Selling: 78.1 TK

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Financial Literacy for financial inclusion and sustainable development

Financial Literacy is prerequisite for building a financial literate society. This is a lifelong process for learning about basics of finance to meet individual wellbeing of every individual. Financial Literacy can give knowledge about financial tools and process which will help for financial inclusion. Financial inclusion of majority population will give sustainable development or inclusive financial growth of a society or a country.

What is Financial Literacy?

Financial Literacy refers to the awareness and knowledge on financial matters and services that effectively facilitates the skills, behavior and attitude of an individual towards impactful financial decision helpful for personal wellbeing as well for the society as whole. Financial Literacy often focuses on teaching people of all ages how to manage their personal finance, the true value of money, create and stick to a budget, and invest their money wisely. As the generations progress, students become fast learners, get sharp, become tech-savvy, and are observant. They pick up habits even faster than we can imagine. They develop a sense of needs, wants, and lifestyle at a young age. What they forget is saving and investing money are vital for a secure and happy future.

Significance of Financial Literacy for students

Teaching financial literacy to students is the best way to improve the financial capacity of the young people of the present generation. It will help them become self-sufficient individuals who can achieve financial stability. Moreover, the financially literate lot of today will contribute to society’s financial growth tomorrow because they will nurture an entrepreneurial spirit that will translate into business owners which in turn will sustain the economy.

What you learn during the maiden years is what you carry lifelong. This is why making students financially literate will teach them about the concept of accountability from the very beginning. This stance not only helps the students to become more proactive but also analytical in their decision-making processes.

Moreover, teaching students early on about handling their money will provide them with a safe space to make mistakes and learn from them before they venture into the real environment, curbing the potency of a future full of financial blunders.

Importance of financial literacy for young adults

Importance of Financial Literacy for young adults:

Young adulthood is a crucial developmental period in the course of life. The developmental stages of young adults include achieving autonomy, trying to establish oneself as an independent person, and developing a sense of self. Young adulthood is a time between adolescents’ reliance on parents and adults,’ and long-term commitments to love and work, and during these years, emerging adults focus on themselves as they develop the knowledge, skills, and self-understanding they will need for adult life.

Shouldering the monumental task of developing into functional members of society, most people skip or overlook the importance of financial literacy in this critical stage of transition to adulthood.

Financial literacy is the ability to understand and use various financial skills, including personal financial management, budgeting, and investing. Lack of literacy in handling one’s finances will lead to impaired decision-making in the future, and this could prove to be detrimental as economic instability rises and creates preventable roadblocks in their progress.

Financial literacy is an important life skill for young adults for several reasons, including:

1. Empowerment:

Financial literacy empowers young adults with the knowledge and tools they need to make informed financial decisions. This includes understanding how to budget, save, invest, and manage debt. By having a strong foundation of financial literacy, young adults can support various life goals, such as saving for education and/or retirement, using debt responsibly, and running a business.

2. Recovering from financial crisis:

Financial literacy leads to greater resilience during predictable and unpredictable life events. Learning how to earn, spend, save, and invest wisely contributes to overall well-being and stability. Financial literacy can help young adults avoid debt and build assets, which can help them become more resilient.

3. Breaking the opportunity gap:

Investing in financial literacy helps bridge the opportunity gap that exists in underserved communities and empowers youth with the tools they need to break the cycle of poverty.

4. Better financial habits:

Financial education can help eradicate poor financial habits and replace them with more appropriate habits. By learning about budgeting, saving, investing, and managing debt, young adults can develop better financial habits that will serve them well throughout their lives.

5. Improved career prospects:

Financial literacy can improve career prospects by enabling individuals to make informed decisions about job offers, negotiate salaries, and plan for retirement. By having a strong foundation of financial literacy, young adults can make informed decisions about their careers and build a solid financial foundation for their future.

Financial literacy is an important life skill for young adults because it empowers them with the knowledge and tools needed for making informed financial decisions, avoiding debt, building assets, and becoming more resilient. It also helps bridge the opportunity gap that exists in underserved communities and gives young adults the confidence to manage their finances and make sound financial decisions. By understanding financial concepts like saving, investing, and debt, young adults can establish a feeling of control over their finances while also using money as a tool to freely make choices that lead to greater life satisfaction.

Components of Financial Literacy

Components of Financial Literacy

Here are five key components of financial literacy:

  • Budgeting
  • Saving
  • Managing debt
  • Investing
  • Managing credit

1. Budgeting

You can think of budgeting as the bedrock of your whole financial life. It's a plan for how you'll direct your income toward expenses, spending and savings goals.

Without a budget, it can be easy to fall into overspending and living paycheck to paycheck. A personal budget, on the other hand, can make meeting your financial obligations predictable.

To increase your budgeting skills:

  • Learn about how to start a budget.
  • Read tips for sticking to your budget.
  • Learn about different budgeting methods and top-rated mobile budgeting apps.
  • Get advice for how to recover if you go off your budget.

2. Saving

Saving is a crucial financial move because it's how you build security and work toward your money goals. Generally speaking, your first order of business should be setting up an emergency savings fund and aiming to keep around three to six months' worth of expenses socked away. Beyond that, saving in advance can help you afford anything you need or want, from unexpected car repairs to next summer's vacation, without going into debt.

To increase your saving skills:

  • Learn about how to pay yourself first to make saving a habit.
  • Find out how to set savings goals that motivate you, such as a home down payment fund.
  • Know where you should keep your savings based on your goals.
  • Try setting up sinking funds, a savings life hack that helps you reach mini goals.

3. Managing Debt

For better or for worse, debt is a common part of financial life. People borrow to achieve any number of goals. You might take out student loans to attend college, an auto loan when you need a new car or a mortgage when you're ready to buy a house. You might also use a credit card or a personal loan when you want to finance a purchase and pay it back over time.

But debt can also be destructive to your finances. To manage your debt well:

  • Learn about the difference between good and bad debt.
  • Understand the impacts of how you manage debt on your credit score, especially how you handle monthly payments.
  • Understand what a grace period is and how paying off your credit cards each month lets you avoid paying interest.
  • If you're carrying balances, learn how to get out of debt faster.

4. Investing

There's a common myth that investing is only for the super wealthy and out of reach for most people. In reality, investing is something everyone should begin as early as possible and doesn't require lots of money.

You can sign up for a retirement account, such as a 401(k) or IRA, and direct a portion of each paycheck into it to start saving for retirement now. That's even true if you only work part time. Experts recommend putting 10% to 15% of your income into your retirement investments, but even starting smaller—at, for example, 5% or 6%—is still a good move.

For context, if someone earns $850 per week pretax, putting 5% of that into retirement would mean contributing $42.50 per week. Invested in a 401(k) or IRA, that money could continue to grow and earn compound interest over time. As your income increases throughout your career, you can up your contributions to reach your retirement goals.

To increase your investing management skills:

  • Understand the basics of retirement planning and how to start investing.
  • Learn what diversification is and how it helps you manage investment risk.
  • Consider the benefits of getting financial advice from a financial advisor.

5. Managing Credit

Good credit is a key piece of a solid financial foundation. When you build and maintain a good credit score, you'll have access to credit at better terms. For example, you'll be able to qualify for a mortgage when you need to buy a home and a lower-rate auto loan when you need a car. You'll also have an easier time qualifying for credit perks such as 0% introductory APR credit cards and rewards credit cards.

To increase your credit management skills:

  • Learn what a credit score is and what impacts your credit.
  • Take steps to build credit over time.
  • Understand what causes decreases in your credit score.
  • Sign up to monitor your credit for free through Experian for insights into what's currently impacting your score and advice on how to improve.
Be a Lifelong Financial Learner

Be a Lifelong Financial Learner

Getting up to speed on the basics of personal money management can make navigating financial decisions easier. Reading up on financial literacy concepts can be a helpful primer. You can also look for helpful money resources such as free credit counseling, learn about how to find affordable financial advising and look for resources that are personally available to you.

For example, some workplaces offer free financial planning and counseling sessions. Ask your employer whats available to you. Another place to check for free financial literacy resources is at local community hubs; for example, many libraries offer personal finance programming to patrons. You can also take advantage of free online financial courses and check out helpful personal finance articles from Experian.

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