importance of financial literacy essay

Essay on Financial Literacy for Students and Children

Importance of financial literacy, an introduction to financial literacy.

We go to schools, colleges, universities to complete our educated and start earning our livelihood. We take up jobs, practise professions or start our own businesses so that we can earn money to make our living. But which of these institutions make us capable of managing our own hard-earned money? Probably a very few of them.

Our ability to effectively manage our money by drawing systematic budgets, paying off our debts, making buying and selling decisions and ultimately becoming financially self-sustainable is known as financial literacy.

Financial literacy is knowing the basic financial management principles and applying them in our day-to-day life.

Financial Literacy – What does it Involve?

From simple practices like keeping a track of our expenses and understanding the need to spend money if we like a product to striking a balance between the value of time saved and money lost, paying our taxes and filing of tax returns, finalizing the property deals, etc – everything becomes a part of financial literacy.

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As human beings, we are not expected to know the nitty-gritty of financial management. But managing our own money in a way that it does not affect us and our family in a negative way is important. We certainly do not want to end up having a day with no money at hand and hunger in our stomach.

Why is Financial Literacy so Important?

Financial literacy can enable an individual to build up a budgetary guide to distinguish what he buys, what he spends, and what he owes. This subject additionally influences entrepreneurs, who incredibly add to financial development and strength of our economy.

Financial literacy helps people in becoming independent and self-sufficient. It empowers you with basic knowledge of investment options, financial markets, capital budgeting, etc.

Understanding your money mitigates the danger of facing a fraud-like situation. A few strategies are anything but difficult to accept, particularly when they’re originating from somebody who is by all accounts learned and planned. Basic knowledge of financial literacy will help people with foreseeing the risks and argue/justify with anyone learned and well-informed.

What should you read on / get informed about in Financial Literacy?

Budgeting and techniques of budgeting
Direct and indirect taxation system
Direct tax slabs
Income and expense tracking
Loans and debt – EMI management
Interest rate systems: fixed versus floating
Business and organisational transaction studies
Elementary Book-keeping and Accountancy
Cash in-flow and out-flow Statements
Investment & personal finance management
Asset management:
Business negotiation skills and techniques
Make or buy decision-making
Financial markets
Capital structure – owner’s funds and borrowed funds
Fundamentals of Risk Management
Microeconomics and Macroeconomics fundamentals

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Financial Literacy: What It Is, and Why It Is So Important To Teach Teens

Education is the key to a successful financial future

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What Is Financial Literacy?

Understanding financial literacy.

Why It Matters

The Bottom Line

Financial literacy is the ability to understand and effectively use various financial skills, including personal financial management, budgeting, and investing.

When you are financially literate, you have the essential foundation for a smart relationship with money. This can help start a lifelong journey of learning about the financial aspects of your life. The earlier you start to become financially literate, the better off you'll be because education is the key to a successful financial future.

Key Takeaways

The term “financial literacy” refers to understanding a variety of important financial skills and concepts.
Financially literate people are generally less vulnerable to financial fraud.
A strong foundation of financial literacy can help support various life goals, such as saving for education or retirement, using debt responsibly, and running a business.
Key aspects of financial literacy include knowing how to create a budget, plan for retirement, manage debt, and track personal spending.
Financial literacy can be obtained through reading books, listening to podcasts, subscribing to financial content, or talking to a financial professional.

Investopedia / Paige McLaughlin

Since about 2000, financial products and services have become increasingly widespread throughout society. Whereas earlier generations of U.S. residents may have purchased goods primarily in cash, various credit products are popular today, such as credit and debit cards and electronic transfers. A 2021 survey by the Federal Reserve Bank of San Francisco revealed that 28% of all payments were made via credit card, with only 20% being made in cash.

Given the importance of finance in modern society, a lack of financial literacy can be very damaging to an individual’s long-term financial success.

Pitfalls of Illiteracy

Being financially illiterate can lead to many pitfalls, such as being more likely to accumulate unsustainable debt burdens, either through poor spending decisions or a lack of long-term preparation. This, in turn, can lead to poor credit , bankruptcy, housing foreclosure , and other negative consequences.

Thankfully, there are now more resources than ever for those wishing to educate themselves about financial topics. One such resource is the U.S. government-sponsored Financial Literacy and Education Commission, which offers a range of free learning opportunities.

Financial literacy can help protect individuals from becoming victims of financial fraud, a type of crime that is becoming more commonplace.

Scope of Financial Literacy

Although many skills might fall under the umbrella of financial literacy, popular examples include household budgeting, learning how to manage and pay off debts , and evaluating the tradeoffs between different credit and investment products. These skills often require at least a working knowledge of key financial concepts, such as compound interest and the time value of money.

Financial literacy can cover short- and long-term financial strategies. The strategy you use will depend on several factors, such as your age, investment time horizon, and risk tolerance . Financial literacy also encompasses knowing how investment decisions made today will impact your tax liabilities in the future.

Financial products such as mortgages, student loans, health insurance, and self-directed investment accounts have grown in importance. It is imperative for individuals to understand how to use them responsibly. It's also important to know which investment vehicles are best to use when saving, whether for a financial goal like buying a home or for retirement.

Other developments in finance such as e-wallets, digital money, and P2P lending can be convenient and cost-effective but require that consumers be educated adequately to use them to their advantage.

Why Financial Literacy Matters

It supports financial well-being.

Day-to-day living expenses, living within your means, short-term borrowing, long-term budget forecasting. To manage these and other essential financial realities properly as you go through life, you must be financially literate.

It is important to plan and save enough to provide adequate income in retirement while avoiding high levels of debt that might result in bankruptcy, defaults, and foreclosures.

In its "Economic Well-Being of U.S. Households in 2022" report, the U.S. Federal Reserve System Board of Governors found that many Americans are not prepared for retirement. Twenty-eight percent indicated that they have no retirement savings, while about 31% of those not yet retired felt that their retirement savings were on track. Among those who have self-directed retirement savings, about 63% admitted to feeling low levels of confidence in making retirement decisions.

Millennials' Challenge

Lack of financial literacy has left millennials—the largest share of the American workforce—unprepared for a severe financial crisis, according to research by the TIAA Institute. Even among those who reported having a high knowledge of personal finance , only 19% answered questions about fundamental financial concepts correctly.

Forty-three percent reported using expensive alternative financial services, such as payday loans and pawnshops. More than half lacked an emergency fund to cover three months’ of expenses, and 37% were financially fragile (defined as unable or unlikely to be able to come up with $2,000 within a month in the event of an emergency).

Millennials also carry large amounts of student loan and mortgage debt. In fact, 44% of them said they have too much debt.

Though these may seem like individual problems, they have a wider effect on the entire population than previously believed. The lack of knowledge of mortgage products prior to the 2008 financial crisis created widespread vulnerability to predatory lending . The financial impact of that crisis affected the entire economy.

Financial literacy is an issue with broad implications for economic health.

If you are a younger individual, retirement may seem years away. Yet it is one of the best goals to begin saving for. That's because the earlier you start, the longer your invested savings will have to compound and the more money you'll end up with. An employer-sponsored retirement account, such as a 401(k) , can help.

Benefits of Financial Literacy

Broadly speaking, the benefit of financial literacy is that it empowers individuals to make smarter decisions about their finances. In addition:

Financial literacy can prevent devastating financial mistakes : Floating rate loans may have different interest rates each month, while traditional individual retirement account (IRA) contributions can’t be withdrawn until retirement. For someone unaware of these and other financial facts, seemingly innocent financial decisions may have long-term implications that cost them money or impact life plans. Financial literacy helps individuals avoid making mistakes with their personal finances.
Financial literacy prepares people for financial emergencies : Topics such as saving or emergency preparedness get individuals ready for uncertain times. Though losing a job or having a major unexpected expense can be financially impactful, an individual can cushion the blow by saving regularly.
Financial literacy can help individuals reach their goals : By better understanding how to budget and save money, individuals can create plans that define expectations, hold them accountable to their finances, and set a course for achieving important financial goals. Though someone may not be able to afford a dream today, they can create a plan that can help make it happen.
Financial literacy gives rise to confidence : Imagine having to make a life-changing financial decision without all the necessary information. With knowledge about finances, individuals can approach major life choices with greater confidence. They'll be more likely to achieve the outcome they desire and less likely to be surprised or negatively impacted by unforeseen outcomes.

Strategies to Improve Financial Literacy Skills

Developing financial literacy involves learning and practicing skills related to budgeting, managing, and paying off debts , and more. It means understanding and using credit and investment products wisely. The good news is that, no matter where you are in life and financially, it’s never too late to start practicing good financial habits.

Here are several practical strategies to consider.

Create a Budget

Track how much money you receive each month and how much you spend. You can use an Excel spreadsheet, paper, or a budgeting app . Your budget should include income (paychecks, investments, alimony), fixed expenses (rent/mortgage payments, utilities, loan payments), discretionary spending (nonessentials such as eating out, shopping, and travel), and savings.

Pay Yourself First

To build savings, this reverse budgeting strategy involves choosing a savings goal, such as paying for higher education, deciding how much you want to contribute toward it each month, and setting that amount aside before you divvy up the rest of your expenses.

Pay Bills Promptly

Stay on top of monthly bills, making sure that your payments are always sent to arrive on time. Consider taking advantage of automatic debits from a checking account or bill-pay apps, and sign up for payment reminders (by email, phone, or text).

Get Your Credit Report

Once a year, consumers can request a free credit report from each of the three major credit bureaus —Equifax, Experian, and TransUnion—through the federally created website AnnualCreditReport.com.

Review these reports and dispute any errors by informing the credit bureau of inaccuracies. Because you can get three of them, consider spacing out your requests throughout the year to monitor your credit regularly.

In a 2022 survey by the Federal Reserve, 27% of adults in the U.S. reported not "doing okay" financially. The number who reported not living comfortably increased from 2021.

Check Your Credit Score

A good credit score enables you to obtain the best interest rates on loans and credit cards, among other benefits. Monitor your score via a free credit monitoring service. Or, if you can afford to and want to add an extra layer of protection for your personal information, use a credit monitoring service . In addition, be aware of what can raise or lower your scores, such as credit inquiries and credit utilization ratios.

Manage Debt

Use your budget to stay on top of debt by reducing spending and increasing repayment. Develop a debt reduction plan , such as paying down the loan with the highest interest rate first. If your debt is excessive, contact lenders to renegotiate repayment, consolidate loans , or find a debt counseling program.

Invest in Your Future

If your employer offers a 401(k) retirement savings account, be sure to sign up and contribute the maximum to receive the employer match . Consider opening an IRA and creating a diversified investment portfolio of stocks, fixed income, and commodities. If necessary, seek financial advice from professional advisors to help you determine how much money you will need to retire comfortably and develop strategies to reach your goal.

Example of Financial Literacy

Emma is a high school teacher who tries to inform her students about financial literacy through her curriculum. She educates them on the basics of a variety of financial topics, such as personal budgeting, debt management, saving for college and retirement, insurance, investing, and even tax planning. Emma’s students can and will use these concepts for things like renting an apartment, getting a first job, or even just paying for fun activities such as going to the movies.

Understanding concepts such as credit cards, bank accounts, interest rates, opportunity costs, debt management , compound interest, and budgets, for example, could help her students start saving and manage the student loans that they might rely on to fund their college education. It could keep them from amassing dangerous levels of debt and threatening their credit scores.

Similarly, she expects that certain topics, such as income taxes and retirement planning, will eventually prove useful to all students, no matter what they end up doing after high school.

Why Is Financial Literacy Important?

Financial literacy gives an individual the tools and resources they need to be financially secure throughout their life. The lack of financial literacy can lead to many pitfalls, such as overspending and accumulating unsustainable debt burdens. This, in turn, can lead to poor credit, bankruptcy, housing foreclosure, or other negative consequences.

How Do I Become Financially Literate?

Becoming financially literate involves learning and practicing a variety of skills related to budgeting, managing and paying off debts, and understanding credit and investment products. Basic steps to improve your personal finances include creating a budget, keeping track of expenses, making timely payments, being prudent about saving money, periodically checking your credit report, and investing for your future.

What Are Some Popular Personal Budget Rules?

Two commonly used personal budgeting methods are the 50/20/30 and 70/20/10 rules, and their simplicity is what makes them popular. The first entails dividing your after-tax, take-home pay into three areas: needs (50%), savings (20%), and wants (30%). The 70/20/10 rule also follows a similar blueprint, recommending that your after-tax, take-home income be divided into segments that cater to expenses (70%), savings or reducing debt (20%), and investments and charitable donations (10%).

What Are the Principles of Financial Literacy?

There are five broad principles of financial literacy. Though other models may list different key components, the overarching goal of financial literacy is to teach individuals about earning, spending, saving, borrowing, and protecting their money.

Financial literacy is the knowledge of various aspects of personal finance and the ability to make smart decisions about money.

It includes preparing a budget, knowing how much to save, recognizing favorable loan terms, understanding what impacts credit, and distinguishing different investment options that can be used to save for retirement.

The financial skills that come from financial literacy can help individuals handle their personal finances responsibly which, in turn, can help them protect the well-being of their financial futures.

Federal Reserve Bank of San Francisco. “ 2022 Findings from the Diary of Consumer Payment Choice .” Page 6.

U.S. Department of the Treasury. “ Financial Literacy and Education Commission .”

Board of Governors of the Federal Reserve System. “ Economic Well-Being of U.S. Households in 2022 .” Pages 68, 71.

Bolognesi, Andrea and et al. “ Millennials and Money: Financial Preparedness and Money Management Practices Before COVID-19 .” TIAA Institute Research Dialogue , no. 167, August 2020, pp. 5, 6, 15, 22.

Bolognesi, Andrea and et al. “ Millennials and Money: Financial Preparedness and Money Management Practices Before COVID-19 .” TIAA Institute Research Dialogue , no. 167, August 2020, pp. 13.

Federal Trade Commission. " Free Credit Reports ."

Board of Governors of the Federal Reserve System. “ Economic Well-Being of U.S. Households in 2022 .” Page 5.

MyMoney.gov. " My Money Five ."

Financial Literacy: What It Is, and Why It Is So Important To Teach Teens 1 of 29
Financial Goals for Students: How and Why to Set Them 2 of 29
How To Teach Personal Finance 3 of 29
How to Learn About Finance 4 of 29
Principles of Building Wealth 5 of 29
Finance Terms for Beginners 6 of 29
Stock Market for Teens 7 of 29
Investing for Teens: What They Should Know 8 of 29
Saving vs. Investing: What Teens Should Know 9 of 29
Talking to Teens About Financial Risk 10 of 29
Portfolio Management Tips for Young Investors 11 of 29
What Are Asset Classes? More Than Just Stocks and Bonds 12 of 29
What Is Stock Trading? 13 of 29
How to Use the Investopedia Simulator 14 of 29
Credit Tips for Teens 15 of 29
Credit Cards vs. Debit Cards: What’s the Difference? 16 of 29
Banking 101 17 of 29
Debt: What It Is, How It Works, Types, and Ways to Pay Back 18 of 29
Financial Technology (Fintech): Its Uses and Impact on Our Lives 19 of 29
What Is a Mobile Wallet? 20 of 29
What Teens Need to Know About Cryptocurrency 21 of 29
Buy Now, Pay Later (BNPL): What It Is, How It Works, Pros and Cons 22 of 29
Best Ways to Send Money as a Teen 23 of 29
10 College Degrees With the Best Starting Salaries 24 of 29
What Are the 5 Purposes of Budgeting? 25 of 29
How to Read a Pay Stub 26 of 29
Teens and Income Taxes: Do They Need to File? 27 of 29
Renting an Apartment for the First Time: What You Need to Know 28 of 29
Personal Finance Influencers You Should Know 29 of 29

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The Importance of Financial Literacy

BRB Bottomline: Amidst a financial literacy crisis, unprecedented in scope and scale, where millions of Americans worry and struggle to make ends meet, why do we not mention financial literacy more? What is the cost of this epidemic in financial acumen and what are the steps we can take to rectify it?

For many of us, at the precipitous age between sheltered adolescence and mortifying adulthood, the very thought of managing our own finances is enough to induce panic-stricken vomiting and invites our basest tendencies to curl into the fetal position when under even the slightest duress. However, money really can be that terrifying—although it shouldn’t—and there truly is an epidemic of missing financial acumen in our society that does warrant this response.

The State of Financial Literacy

We see the epidemic in the ballooning student debt that was $600 billion in 2006 and is nearly $1.6 trillion today. We see it in harrowing statistics such as how one-third of Americans have $0 saved for retirement or how nearly 40% of Americans carry credit card debt —with the average balance being $16,048. And, according to an independent report by Forbes , the average cost of a four-year degree has doubled to nearly $105,000 over the last two decades, while real median wages have only risen a modest $5,000. While the cost of an education is increasing at astronomical rates, it seems the financial education of Americans isn’t matching the same upward trends.

And specifically for millennials research by the National Endowment for Financial Education conducted by GW University found that 69% of millennials awarded themselves a high self-assessment of financial knowledge, while only 23% showed basic financial literacy, and only 7% demonstrated high financial capability. Even having a college-backed education is associated with higher levels of debt across all sources of long-term debt (student loans, home mortgage, auto loan).

This disparity in perceived financial knowledge and actual financial knowledge can have immense and lasting repercussions. It’s one thing to not know a fact, but to believe that one knows, when in fact they don’t, will only work to exacerbate this endogenous and persistent problem.

Even basic financial literacy can have significant effects. According to a 2014 study by Lusardi and Mitchell published in the Journal of Economic Literature, more financially-literate individuals are more likely to plan for retirement, invest in stocks, and make better refinancing decisions. These micro decisions—made daily and frequently—can have lasting long-term benefits. Another paper by Lusardi and Bassa Scheresberg found that financial illiteracy, especially among young adults aged 25-34, were more likely to engage with high-cost borrowing instruments such as payday loans, pawn shops, auto title loans, refund anticipation loans, and rent-to-own shops. These financial decisions, large and small, impact the wealth accumulation of individuals over a lifetime and contribute to generational cycles of poverty and social stratification.

But how do college students fare?

UC Berkeley students, in a nation-wide Study on Collegiate Financial Wellness conducted by the Ohio State University, reported very similar answers to their peers at 90 other institutions. To the statement, “I feel stressed about my personal finances in general,” 67% of students at four-year public universities (64.9% at UC Berkeley) agreed. On answering questions regarding financial knowledge, students at four-year public universities scored on average 3.38 out of 6 points, while the average UC Berkeley student scored 3.4 out of 6 points. The financial stress and crisis of students on our campus is a similar paradigm for students all over the country.

Students reported a significant amount of financial stress were found to have lower academic performance while retaining a higher amount of debt , than those who did not hold this belief. College students with credit card debt of at least a $1000 were at a higher connection to insufficient physical activity and binge drinking , among other unhealthy habits. And 78% of students who had attempted suicide cited financial stress as a “primary reason” for their suicidal ideation.

And there are so many other metrics we can’t measure: We can’t see the effect of this epidemic on the number of children who miss meals at night because their families struggle to make rent and buy the groceries, or on the loss of potential contributions by brilliant students who drop out because they can’t afford the exorbitant cost of their education, or the number of missed workdays because a family can’t afford to see a doctor or keep affordable health insurance.

We often talk about social justice and inequality as rallying points for feel-good campaigns regarding systemic change. Lusardi and Mitchell, in their paper titled “Optimal Financial Knowledge and Wealth Inequality,” posit that financial literacy should be taught as something akin to human capital investment. (The idea that investing in people can increase productivity, and, in turn, profitability.) Their statistical analysis and estimates argue that over half of wealth inequality can be attributed to financial knowledge and the lack thereof.

Minorities and low-income households have less access to financial resources that only exacerbate the financial problems such demographics face. Students without savings accounts are less likely to go to college, and students with higher debt are more likely to drop out, further impacting their future earning potential. If we want to improve the lives of low-income and marginalized communities, then part of the answer exists within the discourse of financial education.

The Changing Landscape

The nature of our relationship with money has changed. Most people don’t carry a significant amount of cash on their person, instead opting for forms of virtual money and lines of credit. To be unable to see the transaction taking place before you—the physical exchange of money from your person to another—makes it that much easier to overspend and mismanage. In our modern-day society, with technology and innovation connecting us and our bank accounts at every turn—misleading ads and offerings of “best refinancing loan rates,” “cash advances” or “0% intro APR credit cards”—more than ever are the gaps in our financial acumen becoming dangerous blind spots with potentially life-changing ramifications.

As employer-provided direct benefit (pension) plans become increasingly rare in lieu of direct compensation (401k) plans, the burden of saving for one’s retirement falls on the financial acumen of the employee. This means that familiarity with financial instruments and long-term saving is crucial to one’s future. The individual must have the financial acumen to be able to save and contribute to their retirement fund while they are young, to reap the rewards of compounding interest.

As the next generation confronts ever more sophisticated financial instruments, it’s critical that financial education keep up.

However, the trends portend a different reality. In the United States, according to a 2018 survey by the Council for Economic Education , only 17 states have some form of personal finance requirement for high school graduation, and no new states have added such a requirement since 2016. Similarly, only 22 states require high schoolers to take an economics course prior to graduation. As clearly evidenced by the literature, financial literacy is crucial to the development and success of our youth, and of society. Yet, the workings of money elude the young American, and only later does it rear its unfamiliar, foreign head, and strike the hand originally meant to wield it.

If our education system is intended to prepare our youth to face the real world—to achieve success and live better lives than their predecessors—then why do we not emphasize the importance of their financial literacy?

Education Reform

Many of the financial literacy programs that exist cater to higher education students and young adults, presumably because this group faces the struggle of poor financial literacy most intimately and abruptly as they first enter the workforce or pay for exorbitant education costs; however, these programs are often reactive, rather than proactive. Financial literacy should be encouraged at the K-12 level to cement positive feedback loops of financial health.

At the state level, 40 states have financial literacy concepts embedded in their states’ curriculum, but, as mentioned above, only 17 states have graduation requirements for financial literacy. According to data by the National Conference of State Legislatures, 28 states and Puerto Rico pitched financial literacy legislation in the 2018 session, with 17 states enacting and adopting resolutions. While these numbers may seem encouraging, this is down from 2017 where 36 states had pending financial literacy legislation and 20 states enacted legislation or resolutions. More states should establish a discrete financial literacy requirement as it drives home the point that financial health is a uniquely important skill to learn.

Teachers, in order to educate students, need to be trained on financial topics and provided the resources necessary to teach these topics. A study of over 1200 K-12 teachers found that 89% believed that students should be required to take a financial literacy course to graduate high school, while less than 20% felt prepared or competent to teach such topics. Only 24 states provide tailored educational materials or resources designed to meet the states’ standards, as stated by an independent report conducted by Brookings .

A study from Montana University found that students from states with high school financial literacy requirements are more likely to apply for aid and receive more federal student loans while having less credit card debt and private loans. And these same students were linked to having higher credit scores after college, likely a consequence of their credit card and debt habits.

Program Recommendations

While much research has yet to be done regarding the most effective way to teach financial literacy, there are some common best practices. Financial literacy courses or curriculums need some sort of evaluative measure, whether it be a test or survey that compares pre-learning and post-learning levels of understanding. On one level this promotes accountability, but it also encourages active participation. Since financial literacy is so nuanced and diverse, learning through individual activities, field trips, and evaluative measures create interesting and engaging programs for children of all ages.

Take Home Points

Mitchell and Lusardi, in the conclusion of their seminal paper on the Economic Importance of Financial Literacy , wrote, “While the costs of raising financial literacy are likely to be substantial, so too are the costs of being liquidity-constrained, overindebted, and poor.”

This fight isn’t easy nor is it cheap. We must encourage lawmakers, both state-level and national, to prioritize financial literacy, support nonprofits and organizations working to rectify the disparity in financial knowledge, and empower schools and educators to teach their communities. There is much work and research to be done to improve the state of financial literacy in our nation and the world, but the cost of not doing so would be severe and lasting.

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What Is Financial Literacy and Why Should You Care?

In celebration of Financial Literacy Month, we’re featuring #FinLit-focused stories and tips to inspire readers.

With April being Financial Literacy Month, you may start to see a spattering of references to financial education all over the internet.

What is the definition of financial literacy? It means understanding how to earn, spend, save, manage and invest money. It also means understanding how the economy works.

If you’re like me, you get really excited about financial literacy and the possibilities it can create for all of us.

With that being said, I fully acknowledge that many will not share my excitement in this area. Most articles on personal finance or financial literacy will go right into how to set a budget, the benefits of saving, and the impact of interest rates. At that point, the majority of individuals lose interest (pun intended) and move on to something else.

In an attempt to keep your attention, let’s spend some time looking at the “ why ” of financial literacy, not just the “ how .”

Financial literacy is about improving your life

While this subject may not be as exciting to you as it is to me, hopefully we can at least agree that money can have a significant impact on our everyday lives. My personal belief is that money doesn’t necessarily buy happiness; it isn’t just about buying that brand new car or newest gadget. However, money can allow a person to have more flexibility, reduce stress and improve relationships.

Living beyond our means can contribute to bankruptcy, divorce and massive stress. Additionally, the burden of student loan debt can keep first-time homebuyers out of the market, thus putting a drag on the economy .

Meanwhile, living with minimal debt and a savings cushion can provide you with the peace of mind and security of being financially free. Therefore, financial literacy isn’t just about getting better with money to buy more stuff—it’s about getting better with money to improve many different aspects of life.

Financial literacy to a child may mean teaching the basics of spending, saving and giving.
To some adults, financial literacy may mean helping someone open up a bank account or preventing someone from engaging with a predatory lender.
For others, financial literacy could be learning how to budget or track spending—allowing you to develop a savings cushion, invest in your company’s pre-tax retirement account, or save up for a new vehicle.

As you can see, financial literacy is important at all ages. And beginning to teach these concepts to children can instill lasting habits: A study by Cambridge University researchers (PDF) showed that behaviors around money form in children as early as age 7. If you happen to be older than 7 (shout-out to all the loyal readers who are not), it’s never too late to learn.

Three core principles for your personal finances

Let’s face it, there’s a lot of conflicting information out there about personal finance. But the better educated you are about finances, the better decisions you’ll make. The core of personal finance is simple: Save more Spend less than you earn and then invest the difference. Editor's note: This language was updated for accuracy.

The doing is the hard part.

It can be tough to go out and make a higher income when you’re barely able to scrape by on your current paycheck. Even with a higher income, slowly paying down debt requires a lot of discipline when spending beyond our means is a constant temptation. Finally, investing can be confusing with so many options in the marketplace. I know this may be challenging depending on income level, amount of debt, or other life situations that come up. We are all on a different path on our financial journeys, which is why it’s called personal finance.

Not sure where to get started? Here are three core financial literacy principles that may help improve anyone’s personal financial situation.

1. Budget or track your spending

I know what you’re thinking: “See, I knew you would talk about budgeting!” Yes, there is a reason why almost every discussion on financial literacy focuses on budgeting or tracking your spending. If you don’t know where your money is going, then how can you make improvements to your financial situation? Budgeting is where you plan out your expenditures ahead of time.

For those who may not want to budget, simply tracking your spending after the money is spent can give you a snapshot of where your money is going. It’s amazing how those random $10 or $20 purchases can add up when left unchecked.

Some of you may already be on a tight budget; others may be able to cut out unnecessary expenses and use that money to pay down debt, build savings or invest. Below are a few resources from the Federal Reserve if you’re looking to get started.

Budgeting 101 Online Course for Consumers
Piggy Bank Primer: Saving and Budgeting Lesson for Grades 2-4
Katrina’s Classroom

2. Establish an emergency fund

Now that you are budgeting or tracking your spending, hopefully you can find a little cushion to save up an emergency fund of $1,000 to $2,000. The Federal Reserve Board issued a report on the economic well-being of U.S. households indicating that 40 percent of Americans could not cover a $400 emergency expense without selling or borrowing something.

Establishing an emergency fund is a critical step to help with the unexpected costs that always seem to come up. A flat tire, leaking toilet or unexpected medical expense can be right around the corner. An emergency fund can significantly reduce the stress of these unexpected situations. Ideally, you’ll want to work your way up to having three to six months of emergency savings to protect yourself or your family in case of a job loss, significant medical event or other large and unexpected expenditure.

3. Develop an understanding of interest rates

Last year I wrote a post on the power of compound interest . Compound interest is known as the “eighth wonder of the world” because investing even a few hundred dollars per month in your 20s can leave you a millionaire by the time you retire. On the other hand, high interest loans could cripple a person for years. While there is a time and place for debt, not having a plan to get out of high-interest debt can lead to financial turmoil.

I remember a point in my life where the basics of interest rates were very confusing. The difference of a 3 percent interest rate on a money market account versus a 3 percent interest rate on a car loan wasn’t clear. Interest rate percentages are used interchangeably and, at least to me, it wasn’t obvious the positive or negative effect that interest rates had on an investment or debt.

According to a working paper from the National Bureau of Economic Research, less than one-third of young adults possess basic knowledge of interest rates, inflation and risk diversification . Financial literacy can help you understand these topics, allowing you to make better financial decisions.

First individuals, then families, then the economy

Personal finance is as much behavioral as it is about the numbers. Having a strong understanding of financial literacy will allow you to make better financial decisions that can hopefully improve your day-to-day life. At the macro level, financial literacy can result in stronger family balance sheets, which lead to a stronger overall economy (PDF).

While the concepts of personal finance are simple, research shows there is a long way to go in spreading financial literacy. Take time this April to educate yourself or a friend on personal finance-related topics. The St. Louis Fed’s economic education team has a variety of resources that can assist you or someone else on the journey to becoming more financially literate.

Notes and References

1 Editor's note: This language was updated for accuracy.

Mark Catanzaro is a senior manager in the St. Louis Fed’s Supervision and Regulation division. His academic background includes economics and finance.

Financial Literacy

Course: financial literacy > unit 1.

Welcome to Financial Literacy
Welcome to Financial Literacy!

What is financial literacy?

Is financial literacy just about knowing how to budget, is it too late for me to become financially literate, do i need specific math skills to be financially literate, isn't financial literacy only important for people who make a lot of money, is it enough to just put my money in a savings account, want to join the conversation.

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Financial Literacy: The Importance in the Modern World Essay

In previous years, the issue of investing has become popular among beginning investors who follow the advice of bloggers and put their money in unsafe securities or individuals who hope for the burgeoning future of NFTs and cryptocurrency. However, instead of blindly following the advice of impostor financial advisors or buying securities without having knowledge about them, the public should focus on overall financial literacy. From a very young age, every person should learn how to use their money wisely and how it can help not only save but multiply the savings and have enough for a carefree retirement.

The first reason why acquiring the skills of financial literacy is essential is its protection against inflation. At the given moment, the rate of inflation is 7.7%, which means that if money is simply in the deposit account, at the end of the year, its value will decrease by this number (U.S. Inflation Calculator). This is why if people desire to make a big purchase after having enough money for it, eventually, they will be trapped in a vicious circle of constant saving since the prices will be rising together with inflation.

Another point that representatives of younger generations must understand is that financial literacy enables skills of wise saving for retirement. According to The New York Times, schools do not have obligatory courses on 401(k)s and Individual Retirement Accounts, despite the fact that the majority of employees are now responsible for their own retirement plans (Lieber and John). As a result, many children, adolescents, and adults are unaware of the fact that if they start investing $5,000 annually at the age of twenty-two, by the age of 67, they will accumulate approximately $1 million dollars (Lieber and John). However, if they start at thirty-two and invest the same amount of money, they will only manage to generate $500,000 (Lieber and John). Thus, this is the compound interest effect that many people with a lack of financial literacy fail to understand.

Moreover, it is vital to see the benefits of saving in order to have a safety cushion. According to Forbes, two out of three Americans are spending their savings because they are concerned about inflation (Campisi). As a result, these individuals who refuse to save will not have an emergency fund, and if there is a crisis situation, they will have to seek loans. In comparison, those who have basic financial literacy skills know that panicking is the worst enemy, and they are prepared for such scenarios, which is why financial literacy is crucial.

Still, it is important to review other valid opinions regarding investing and saving. While it can be a helpful skill, sometimes financial literacy, along with consistent investing, can be disrupted by certain risks. For instance, the financial crisis of 2008 led to a loss of $2 trillion dollars (Merle). However, it is noteworthy that the results of such outcomes were external factors rather than personal actions.

Hence, it is necessary to learn the fundamentals of financial literacy from a young age in order to have a carefree retirement, emergency funds, and protection against inflation. I believe that it is unfortunate that children do not acquire this knowledge at school and, therefore, it should be either personal or parental responsibility to either learn or teach such skills. With such an approach, both children and adults will be more careful with money and be prepared for any hardship or crisis, being able to grow into financially independent people.

Works Cited

Campisi, Natalie. 2 Out Of 3 Americans Say They’re Blowing Through Savings to Cope With Inflation—Do This Instead . Forbes, 2022. Web.

Lieber, Ron and Todd S. John. How to Win at Retirement Savings . The New York Times, n.d. Web.

Merle, Renae. A Guide to the Financial Crisis — 10 Years Later . The Washington Post. Web.

U.S. Inflation Calculator. Current US Inflation Rates: 2000-2022 . U.S. Inflation Calculator, n.d. Web.

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Conference key note
Open access
Published: 24 January 2019

Financial literacy and the need for financial education: evidence and implications

Annamaria Lusardi 1

Swiss Journal of Economics and Statistics volume 155 , Article number: 1 ( 2019 ) Cite this article

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1 Introduction

Throughout their lifetime, individuals today are more responsible for their personal finances than ever before. With life expectancies rising, pension and social welfare systems are being strained. In many countries, employer-sponsored defined benefit (DB) pension plans are swiftly giving way to private defined contribution (DC) plans, shifting the responsibility for retirement saving and investing from employers to employees. Individuals have also experienced changes in labor markets. Skills are becoming more critical, leading to divergence in wages between those with a college education, or higher, and those with lower levels of education. Simultaneously, financial markets are rapidly changing, with developments in technology and new and more complex financial products. From student loans to mortgages, credit cards, mutual funds, and annuities, the range of financial products people have to choose from is very different from what it was in the past, and decisions relating to these financial products have implications for individual well-being. Moreover, the exponential growth in financial technology (fintech) is revolutionizing the way people make payments, decide about their financial investments, and seek financial advice. In this context, it is important to understand how financially knowledgeable people are and to what extent their knowledge of finance affects their financial decision-making.

An essential indicator of people’s ability to make financial decisions is their level of financial literacy. The Organisation for Economic Co-operation and Development (OECD) aptly defines financial literacy as not only the knowledge and understanding of financial concepts and risks but also the skills, motivation, and confidence to apply such knowledge and understanding in order to make effective decisions across a range of financial contexts, to improve the financial well-being of individuals and society, and to enable participation in economic life. Thus, financial literacy refers to both knowledge and financial behavior, and this paper will analyze research on both topics.

As I describe in more detail below, findings around the world are sobering. Financial literacy is low even in advanced economies with well-developed financial markets. On average, about one third of the global population has familiarity with the basic concepts that underlie everyday financial decisions (Lusardi and Mitchell, 2011c ). The average hides gaping vulnerabilities of certain population subgroups and even lower knowledge of specific financial topics. Furthermore, there is evidence of a lack of confidence, particularly among women, and this has implications for how people approach and make financial decisions. In the following sections, I describe how we measure financial literacy, the levels of literacy we find around the world, the implications of those findings for financial decision-making, and how we can improve financial literacy.

2 How financially literate are people?

2.1 measuring financial literacy: the big three.

In the context of rapid changes and constant developments in the financial sector and the broader economy, it is important to understand whether people are equipped to effectively navigate the maze of financial decisions that they face every day. To provide the tools for better financial decision-making, one must assess not only what people know but also what they need to know, and then evaluate the gap between those things. There are a few fundamental concepts at the basis of most financial decision-making. These concepts are universal, applying to every context and economic environment. Three such concepts are (1) numeracy as it relates to the capacity to do interest rate calculations and understand interest compounding; (2) understanding of inflation; and (3) understanding of risk diversification. Translating these concepts into easily measured financial literacy metrics is difficult, but Lusardi and Mitchell ( 2008 , 2011b , 2011c ) have designed a standard set of questions around these concepts and implemented them in numerous surveys in the USA and around the world.

Four principles informed the design of these questions, as described in detail by Lusardi and Mitchell ( 2014 ). The first is simplicity : the questions should measure knowledge of the building blocks fundamental to decision-making in an intertemporal setting. The second is relevance : the questions should relate to concepts pertinent to peoples’ day-to-day financial decisions over the life cycle; moreover, they must capture general rather than context-specific ideas. Third is brevity : the number of questions must be few enough to secure widespread adoption; and fourth is capacity to differentiate , meaning that questions should differentiate financial knowledge in such a way as to permit comparisons across people. Each of these principles is important in the context of face-to-face, telephone, and online surveys.

Three basic questions (since dubbed the “Big Three”) to measure financial literacy have been fielded in many surveys in the USA, including the National Financial Capability Study (NFCS) and, more recently, the Survey of Consumer Finances (SCF), and in many national surveys around the world. They have also become the standard way to measure financial literacy in surveys used by the private sector. For example, the Aegon Center for Longevity and Retirement included the Big Three questions in the 2018 Aegon Retirement Readiness Survey, covering around 16,000 people in 15 countries. Both ING and Allianz, but also investment funds, and pension funds have used the Big Three to measure financial literacy. The exact wording of the questions is provided in Table 1 .

2.2 Cross-country comparison

The first examination of financial literacy using the Big Three was possible due to a special module on financial literacy and retirement planning that Lusardi and Mitchell designed for the 2004 Health and Retirement Study (HRS), which is a survey of Americans over age 50. Astonishingly, the data showed that only half of older Americans—who presumably had made many financial decisions in their lives—could answer the two basic questions measuring understanding of interest rates and inflation (Lusardi and Mitchell, 2011b ). And just one third demonstrated understanding of these two concepts and answered the third question, measuring understanding of risk diversification, correctly. It is sobering that recent US surveys, such as the 2015 NFCS, the 2016 SCF, and the 2017 Survey of Household Economics and Financial Decisionmaking (SHED), show that financial knowledge has remained stubbornly low over time.

Over time, the Big Three have been added to other national surveys across countries and Lusardi and Mitchell have coordinated a project called Financial Literacy around the World (FLat World), which is an international comparison of financial literacy (Lusardi and Mitchell, 2011c ).

Findings from the FLat World project, which so far includes data from 15 countries, including Switzerland, highlight the urgent need to improve financial literacy (see Table 2 ). Across countries, financial literacy is at a crisis level, with the average rate of financial literacy, as measured by those answering correctly all three questions, at around 30%. Moreover, only around 50% of respondents in most countries are able to correctly answer the two financial literacy questions on interest rates and inflation correctly. A noteworthy point is that most countries included in the FLat World project have well-developed financial markets, which further highlights the cause for alarm over the demonstrated lack of the financial literacy. The fact that levels of financial literacy are so similar across countries with varying levels of economic development—indicating that in terms of financial knowledge, the world is indeed flat —shows that income levels or ubiquity of complex financial products do not by themselves equate to a more financially literate population.

Other noteworthy findings emerge in Table 2 . For instance, as expected, understanding of the effects of inflation (i.e., of real versus nominal values) among survey respondents is low in countries that have experienced deflation rather than inflation: in Japan, understanding of inflation is at 59%; in other countries, such as Germany, it is at 78% and, in the Netherlands, it is at 77%. Across countries, individuals have the lowest level of knowledge around the concept of risk, and the percentage of correct answers is particularly low when looking at knowledge of risk diversification. Here, we note the prevalence of “do not know” answers. While “do not know” responses hover around 15% on the topic of interest rates and 18% for inflation, about 30% of respondents—in some countries even more—are likely to respond “do not know” to the risk diversification question. In Switzerland, 74% answered the risk diversification question correctly and 13% reported not knowing the answer (compared to 3% and 4% responding “do not know” for the interest rates and inflation questions, respectively).

These findings are supported by many other surveys. For example, the 2014 Standard & Poor’s Global Financial Literacy Survey shows that, around the world, people know the least about risk and risk diversification (Klapper, Lusardi, and Van Oudheusden, 2015 ). Similarly, results from the 2016 Allianz survey, which collected evidence from ten European countries on money, financial literacy, and risk in the digital age, show very low-risk literacy in all countries covered by the survey. In Austria, Germany, and Switzerland, which are the three top-performing nations in term of financial knowledge, less than 20% of respondents can answer three questions related to knowledge of risk and risk diversification (Allianz, 2017 ).

Other surveys show that the findings about financial literacy correlate in an expected way with other data. For example, performance on the mathematics and science sections of the OECD Program for International Student Assessment (PISA) correlates with performance on the Big Three and, specifically, on the question relating to interest rates. Similarly, respondents in Sweden, which has experienced pension privatization, performed better on the risk diversification question (at 68%), than did respondents in Russia and East Germany, where people have had less exposure to the stock market. For researchers studying financial knowledge and its effects, these findings hint to the fact that financial literacy could be the result of choice and not an exogenous variable.

To summarize, financial literacy is low across the world and higher national income levels do not equate to a more financially literate population. The design of the Big Three questions enables a global comparison and allows for a deeper understanding of financial literacy. This enhances the measure’s utility because it helps to identify general and specific vulnerabilities across countries and within population subgroups, as will be explained in the next section.

2.3 Who knows the least?

Low financial literacy on average is exacerbated by patterns of vulnerability among specific population subgroups. For instance, as reported in Lusardi and Mitchell ( 2014 ), even though educational attainment is positively correlated with financial literacy, it is not sufficient. Even well-educated people are not necessarily savvy about money. Financial literacy is also low among the young. In the USA, less than 30% of respondents can correctly answer the Big Three by age 40, even though many consequential financial decisions are made well before that age (see Fig. 1 ). Similarly, in Switzerland, only 45% of those aged 35 or younger are able to correctly answer the Big Three questions. Footnote 1 And if people may learn from making financial decisions, that learning seems limited. As shown in Fig. 1 , many older individuals, who have already made decisions, cannot answer three basic financial literacy questions.

Financial literacy across age in the USA. This figure shows the percentage of respondents who answered correctly all Big Three questions by age group (year 2015). Source: 2015 US National Financial Capability Study

A gender gap in financial literacy is also present across countries. Women are less likely than men to answer questions correctly. The gap is present not only on the overall scale but also within each topic, across countries of different income levels, and at different ages. Women are also disproportionately more likely to indicate that they do not know the answer to specific questions (Fig. 2 ), highlighting overconfidence among men and awareness of lack of knowledge among women. Even in Finland, which is a relatively equal society in terms of gender, 44% of men compared to 27% of women answer all three questions correctly and 18% of women give at least one “do not know” response versus less than 10% of men (Kalmi and Ruuskanen, 2017 ). These figures further reflect the universality of the Big Three questions. As reported in Fig. 2 , “do not know” responses among women are prevalent not only in European countries, for example, Switzerland, but also in North America (represented in the figure by the USA, though similar findings are reported in Canada) and in Asia (represented in the figure by Japan). Those interested in learning more about the differences in financial literacy across demographics and other characteristics can consult Lusardi and Mitchell ( 2011c , 2014 ).

Gender differences in the responses to the Big Three questions. Sources: USA—Lusardi and Mitchell, 2011c ; Japan—Sekita, 2011 ; Switzerland—Brown and Graf, 2013

3 Does financial literacy matter?

A growing number of financial instruments have gained importance, including alternative financial services such as payday loans, pawnshops, and rent to own stores that charge very high interest rates. Simultaneously, in the changing economic landscape, people are increasingly responsible for personal financial planning and for investing and spending their resources throughout their lifetime. We have witnessed changes not only in the asset side of household balance sheets but also in the liability side. For example, in the USA, many people arrive close to retirement carrying a lot more debt than previous generations did (Lusardi, Mitchell, and Oggero, 2018 ). Overall, individuals are making substantially more financial decisions over their lifetime, living longer, and gaining access to a range of new financial products. These trends, combined with low financial literacy levels around the world and, particularly, among vulnerable population groups, indicate that elevating financial literacy must become a priority for policy makers.

There is ample evidence of the impact of financial literacy on people’s decisions and financial behavior. For example, financial literacy has been proven to affect both saving and investment behavior and debt management and borrowing practices. Empirically, financially savvy people are more likely to accumulate wealth (Lusardi and Mitchell, 2014 ). There are several explanations for why higher financial literacy translates into greater wealth. Several studies have documented that those who have higher financial literacy are more likely to plan for retirement, probably because they are more likely to appreciate the power of interest compounding and are better able to do calculations. According to the findings of the FLat World project, answering one additional financial question correctly is associated with a 3–4 percentage point greater probability of planning for retirement; this finding is seen in Germany, the USA, Japan, and Sweden. Financial literacy is found to have the strongest impact in the Netherlands, where knowing the right answer to one additional financial literacy question is associated with a 10 percentage point higher probability of planning (Mitchell and Lusardi, 2015 ). Empirically, planning is a very strong predictor of wealth; those who plan arrive close to retirement with two to three times the amount of wealth as those who do not plan (Lusardi and Mitchell, 2011b ).

Financial literacy is also associated with higher returns on investments and investment in more complex assets, such as stocks, which normally offer higher rates of return. This finding has important consequences for wealth; according to the simulation by Lusardi, Michaud, and Mitchell ( 2017 ), in the context of a life-cycle model of saving with many sources of uncertainty, from 30 to 40% of US retirement wealth inequality can be accounted for by differences in financial knowledge. These results show that financial literacy is not a sideshow, but it plays a critical role in saving and wealth accumulation.

Financial literacy is also strongly correlated with a greater ability to cope with emergency expenses and weather income shocks. Those who are financially literate are more likely to report that they can come up with $2000 in 30 days or that they are able to cover an emergency expense of $400 with cash or savings (Hasler, Lusardi, and Oggero, 2018 ).

With regard to debt behavior, those who are more financially literate are less likely to have credit card debt and more likely to pay the full balance of their credit card each month rather than just paying the minimum due (Lusardi and Tufano, 2009 , 2015 ). Individuals with higher financial literacy levels also are more likely to refinance their mortgages when it makes sense to do so, tend not to borrow against their 401(k) plans, and are less likely to use high-cost borrowing methods, e.g., payday loans, pawn shops, auto title loans, and refund anticipation loans (Lusardi and de Bassa Scheresberg, 2013 ).

Several studies have documented poor debt behavior and its link to financial literacy. Moore ( 2003 ) reported that the least financially literate are also more likely to have costly mortgages. Lusardi and Tufano ( 2015 ) showed that the least financially savvy incurred high transaction costs, paying higher fees and using high-cost borrowing methods. In their study, the less knowledgeable also reported excessive debt loads and an inability to judge their debt positions. Similarly, Mottola ( 2013 ) found that those with low financial literacy were more likely to engage in costly credit card behavior, and Utkus and Young ( 2011 ) concluded that the least literate were more likely to borrow against their 401(k) and pension accounts.

Young people also struggle with debt, in particular with student loans. According to Lusardi, de Bassa Scheresberg, and Oggero ( 2016 ), Millennials know little about their student loans and many do not attempt to calculate the payment amounts that will later be associated with the loans they take. When asked what they would do, if given the chance to revisit their student loan borrowing decisions, about half of Millennials indicate that they would make a different decision.

Finally, a recent report on Millennials in the USA (18- to 34-year-olds) noted the impact of financial technology (fintech) on the financial behavior of young individuals. New and rapidly expanding mobile payment options have made transactions easier, quicker, and more convenient. The average user of mobile payments apps and technology in the USA is a high-income, well-educated male who works full time and is likely to belong to an ethnic minority group. Overall, users of mobile payments are busy individuals who are financially active (holding more assets and incurring more debt). However, mobile payment users display expensive financial behaviors, such as spending more than they earn, using alternative financial services, and occasionally overdrawing their checking accounts. Additionally, mobile payment users display lower levels of financial literacy (Lusardi, de Bassa Scheresberg, and Avery, 2018 ). The rapid growth in fintech around the world juxtaposed with expensive financial behavior means that more attention must be paid to the impact of mobile payment use on financial behavior. Fintech is not a substitute for financial literacy.

4 The way forward for financial literacy and what works

Overall, financial literacy affects everything from day-to-day to long-term financial decisions, and this has implications for both individuals and society. Low levels of financial literacy across countries are correlated with ineffective spending and financial planning, and expensive borrowing and debt management. These low levels of financial literacy worldwide and their widespread implications necessitate urgent efforts. Results from various surveys and research show that the Big Three questions are useful not only in assessing aggregate financial literacy but also in identifying vulnerable population subgroups and areas of financial decision-making that need improvement. Thus, these findings are relevant for policy makers and practitioners. Financial illiteracy has implications not only for the decisions that people make for themselves but also for society. The rapid spread of mobile payment technology and alternative financial services combined with lack of financial literacy can exacerbate wealth inequality.

To be effective, financial literacy initiatives need to be large and scalable. Schools, workplaces, and community platforms provide unique opportunities to deliver financial education to large and often diverse segments of the population. Furthermore, stark vulnerabilities across countries make it clear that specific subgroups, such as women and young people, are ideal targets for financial literacy programs. Given women’s awareness of their lack of financial knowledge, as indicated via their “do not know” responses to the Big Three questions, they are likely to be more receptive to financial education.

The near-crisis levels of financial illiteracy, the adverse impact that it has on financial behavior, and the vulnerabilities of certain groups speak of the need for and importance of financial education. Financial education is a crucial foundation for raising financial literacy and informing the next generations of consumers, workers, and citizens. Many countries have seen efforts in recent years to implement and provide financial education in schools, colleges, and workplaces. However, the continuously low levels of financial literacy across the world indicate that a piece of the puzzle is missing. A key lesson is that when it comes to providing financial education, one size does not fit all. In addition to the potential for large-scale implementation, the main components of any financial literacy program should be tailored content, targeted at specific audiences. An effective financial education program efficiently identifies the needs of its audience, accurately targets vulnerable groups, has clear objectives, and relies on rigorous evaluation metrics.

Using measures like the Big Three questions, it is imperative to recognize vulnerable groups and their specific needs in program designs. Upon identification, the next step is to incorporate this knowledge into financial education programs and solutions.

School-based education can be transformational by preparing young people for important financial decisions. The OECD’s Programme for International Student Assessment (PISA), in both 2012 and 2015, found that, on average, only 10% of 15-year-olds achieved maximum proficiency on a five-point financial literacy scale. As of 2015, about one in five of students did not have even basic financial skills (see OECD, 2017 ). Rigorous financial education programs, coupled with teacher training and high school financial education requirements, are found to be correlated with fewer defaults and higher credit scores among young adults in the USA (Urban, Schmeiser, Collins, and Brown, 2018 ). It is important to target students and young adults in schools and colleges to provide them with the necessary tools to make sound financial decisions as they graduate and take on responsibilities, such as buying cars and houses, or starting retirement accounts. Given the rising cost of education and student loan debt and the need of young people to start contributing as early as possible to retirement accounts, the importance of financial education in school cannot be overstated.

There are three compelling reasons for having financial education in school. First, it is important to expose young people to the basic concepts underlying financial decision-making before they make important and consequential financial decisions. As noted in Fig. 1 , financial literacy is very low among the young and it does not seem to increase a lot with age/generations. Second, school provides access to financial literacy to groups who may not be exposed to it (or may not be equally exposed to it), for example, women. Third, it is important to reduce the costs of acquiring financial literacy, if we want to promote higher financial literacy both among individuals and among society.

There are compelling reasons to have personal finance courses in college as well. In the same way in which colleges and university offer courses in corporate finance to teach how to manage the finances of firms, so today individuals need the knowledge to manage their own finances over the lifetime, which in present discounted value often amount to large values and are made larger by private pension accounts.

Financial education can also be efficiently provided in workplaces. An effective financial education program targeted to adults recognizes the socioeconomic context of employees and offers interventions tailored to their specific needs. A case study conducted in 2013 with employees of the US Federal Reserve System showed that completing a financial literacy learning module led to significant changes in retirement planning behavior and better-performing investment portfolios (Clark, Lusardi, and Mitchell, 2017 ). It is also important to note the delivery method of these programs, especially when targeted to adults. For instance, video formats have a significantly higher impact on financial behavior than simple narratives, and instruction is most effective when it is kept brief and relevant (Heinberg et al., 2014 ).

The Big Three also show that it is particularly important to make people familiar with the concepts of risk and risk diversification. Programs devoted to teaching risk via, for example, visual tools have shown great promise (Lusardi et al., 2017 ). The complexity of some of these concepts and the costs of providing education in the workplace, coupled with the fact that many older individuals may not work or work in firms that do not offer such education, provide other reasons why financial education in school is so important.

Finally, it is important to provide financial education in the community, in places where people go to learn. A recent example is the International Federation of Finance Museums, an innovative global collaboration that promotes financial knowledge through museum exhibits and the exchange of resources. Museums can be places where to provide financial literacy both among the young and the old.

There are a variety of other ways in which financial education can be offered and also targeted to specific groups. However, there are few evaluations of the effectiveness of such initiatives and this is an area where more research is urgently needed, given the statistics reported in the first part of this paper.

5 Concluding remarks

The lack of financial literacy, even in some of the world’s most well-developed financial markets, is of acute concern and needs immediate attention. The Big Three questions that were designed to measure financial literacy go a long way in identifying aggregate differences in financial knowledge and highlighting vulnerabilities within populations and across topics of interest, thereby facilitating the development of tailored programs. Many such programs to provide financial education in schools and colleges, workplaces, and the larger community have taken existing evidence into account to create rigorous solutions. It is important to continue making strides in promoting financial literacy, by achieving scale and efficiency in future programs as well.

In August 2017, I was appointed Director of the Italian Financial Education Committee, tasked with designing and implementing the national strategy for financial literacy. I will be able to apply my research to policy and program initiatives in Italy to promote financial literacy: it is an essential skill in the twenty-first century, one that individuals need if they are to thrive economically in today’s society. As the research discussed in this paper well documents, financial literacy is like a global passport that allows individuals to make the most of the plethora of financial products available in the market and to make sound financial decisions. Financial literacy should be seen as a fundamental right and universal need, rather than the privilege of the relatively few consumers who have special access to financial knowledge or financial advice. In today’s world, financial literacy should be considered as important as basic literacy, i.e., the ability to read and write. Without it, individuals and societies cannot reach their full potential.

See Brown and Graf ( 2013 ).

Abbreviations

Defined benefit (refers to pension plan)

Defined contribution (refers to pension plan)

Financial Literacy around the World

National Financial Capability Study

Organisation for Economic Co-operation and Development

Programme for International Student Assessment

Survey of Consumer Finances

Survey of Household Economics and Financial Decisionmaking

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Acknowledgements

This paper represents a summary of the keynote address I gave to the 2018 Annual Meeting of the Swiss Society of Economics and Statistics. I would like to thank Monika Butler, Rafael Lalive, anonymous reviewers, and participants of the Annual Meeting for useful discussions and comments, and Raveesha Gupta for editorial support. All errors are my responsibility.

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Should All Schools Teach Financial Literacy?

And should students have to understand topics like budgets, consumer credit, student debt, saving and investing in order to graduate?

By Shannon Doyne

Students in U.S. high schools can get free digital access to The New York Times until Sept. 1, 2021.

How well do you think you manage money? Has anyone ever taught you any money-management skills? In general, how “financially literate” do you think you are? For instance, do you know how to budget and save? How to set up a bank account? Apply for financial aid and college loans?

Does your school teach these skills already? If not, do you wish it did? Should passing a financial-literacy class be a requirement for graduating from high school?

In “ Pandemic Helps Stir Interest in Teaching Financial Literacy ,” Ann Carrns writes about the growing interest in teaching students personal financial skills in U.S. schools:

As of early 2020, high school students in 21 states were required to take a personal finance course to graduate, according to the Council for Economic Education , which promotes economic and personal finance education for students in kindergarten through high school. That was a net gain of four states since the council’s previous count two years earlier. “We are making progress,” said Billy J. Hensley, president and chief executive of the National Endowment for Financial Education, a nonprofit group that promotes effective financial education. “I do think the pandemic is bringing more attention to the topic,” he said, noting that after the financial crisis more than a decade ago there was also a flurry of financial literacy proposals in state legislatures. An increasing number of studies support the effectiveness of financial literacy education when taught by well-trained teachers, said Nan J. Morrison, chief executive of the Council for Economic Education. And more teachers now say they feel confident teaching the material. A study released in March by researchers at the University of Wisconsin and Montana State University found significant increases in teacher participation in professional development. Still, the rigor of high school financial education varies. Just six states require high school students to complete a semester-long, stand-alone personal finance course, the council’s 2020 report found. Some states permit shorter courses or include the content as part of another class. In states that don’t require financial instruction, some schools opt to teach it and do an excellent job, but others ignore the subject completely — and they tend to be schools in less affluent districts, Mr. Hensley said.

The article also outlines the specifics on what the curriculum might look like:

Many financial literacy advocates consider a full-semester course the gold standard for personal finance instruction. Rebecca Maxcy, director of the Financial Education Initiative at the University of Chicago, said many courses focused mainly on skills, like writing a check or filing taxes. While those lessons can be helpful, she said, it’s important for courses to include discussions of how personal values and attitudes about money influence behavior, as well as an examination of the financial systems and potential barriers that students will encounter in the world of money. Questions like “Who benefits when you open a bank account?” can prompt meaningful discussions, she said. Some curriculum options, however, offer more condensed, basic instruction. Everfi, a digital instructional company, offers a free seven-session program for high school financial literacy. Students take interactive, self-guided lessons in topics like banking, budgeting and college financing. Sidney Strause, a freshman at Marshall University in West Virginia, said she had taken Everfi’s course as a junior in high school. The lessons were assigned as part of another course she was taking, and typically took 45 minutes to an hour to complete. “It taught me how to budget and save,” she said. “It’s crucial to adulthood.” Sometimes she would do the lessons at home and discuss them with her mother, she said, which led her mother to create a budget and set financial goals.

Students, read the entire article, then tell us:

What, if anything, in this article resonates with you and your experiences with learning about money?

Do you think schools should offer courses on financial literacy? Should taking them be mandatory for graduation?

What topics should financial literacy instruction in schools cover? In what grade should students start learning about it?

One of the experts quoted in this piece says that it’s important for courses to include discussions of how personal values and attitudes about money influence behavior. What are your general attitudes toward money, and where do you think you learned these attitudes? For instance, how much does making money factor into your goals for a future career?

Why do you think that some people believe the interest in teaching students skills about managing money increased during the pandemic? In this time, did you experience or witness any events that made you wish you had some knowledge of personal finances — or that made you grateful for what you know?

Earlier this year, the price of GameStop stock soared when individual traders, including some teenagers, purchased many shares as a way to both make money and retaliate against large hedge funds that forecast the stock losing value. Did you learn about this situation as it happened? Did you participate? Did any of your teachers talk about it, and if so, what did they say? If you have specific thoughts to contribute, answer our Student Opinion question, “ Should All Young People Learn How to Invest in the Stock Market? ”

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Home — Essay Samples — Economics — Corporate Finance — Importance of Financial Literacy

Importance of Financial Literacy

Categories: Corporate Finance

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Published: Dec 5, 2018

Words: 1983 | Pages: 4 | 10 min read

Financial tools – financial literacy

Financing activities include the borrowing and repayment of long-term liabilities.
Investing activities include the purchase and sale of your long-term fixed assets, such as property, plant and equipment.
Operating activities include your day-to-day operations.
Budgeting Basics
ensure you have enough money for your future projects.
enable you to make confident financial decisions and meet your objectives
ensure you can continue to fund your current commitments
control your finances
Banking and Financial Services
The Impact of Interest Understanding the ins and outs of interest can impact your finances more than you likely realize, so it’s an important concept to gain a better understand of early on in life.
The Credit-Debt Roller-coaster

Works Cited

Bhatia, A. (2022). Financial Literacy and Entrepreneurship: A Review. International Journal of Research in Business Studies and Management, 9(4), 14-22.
Cooper, D., & Ebert, R. (2020). Budgeting Basics for Small Business Owners. Journal of Small Business Management, 58(4), 722-740.
Federal Reserve Bank of Kansas City. (2021). Cash Management Basics: A Guide for Small Business Owners. Retrieved from https://www.kansascityfed.org/~/media/files/publicat/psr/pdf/cash-management-basics.pdf
Financial Consumer Agency of Canada. (2022). Banking and Financial Services. Retrieved from https://www.canada.ca/en/financial-consumer-agency/services/banking.html
Hackston, D., & Dowling, M. (2023). Financial Literacy Rates Among Adults in Advanced and Emerging Economies. International Journal of Financial Education, 21(1), 18-35.
Organization for Economic Co-operation and Development. (2017). OECD/INFE Core Competencies Framework on Financial Literacy for Adults. Retrieved from http://www.oecd.org/daf/fin/financial-education/International-Core-Competencies-Framework.pdf
Pailella, P. (2016). Financial Literacy and Entrepreneurial Success: The Moderating Role of Financial Knowledge and Experience. Journal of Small Business Management, 54(4), 1175-1192.
Parcheta, M. (2021). The Role of Financial Literacy in Women Entrepreneurship Development. European Financial and Accounting Journal, 16(2), 87-100

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Essay on Financial Literacy

Students are often asked to write an essay on Financial Literacy in their schools and colleges. And if you’re also looking for the same, we have created 100-word, 250-word, and 500-word essays on the topic.

Let’s take a look…

100 Words Essay on Financial Literacy

What is financial literacy.

Financial literacy means knowing how to manage money. This includes understanding how to save, spend, and invest your cash. It’s like learning a new language but for money. It helps you make smart choices with your pocket money or savings from a part-time job.

Why Save Money?

Saving money is like keeping seeds for planting. You save now and have more later. It’s important to save for things you might want in the future or if something unexpected happens, like a broken bike that needs fixing.

Spending Wisely

Spending wisely means thinking before buying. Ask yourself, “Do I really need this?” or “Can I find it cheaper somewhere else?” This helps you avoid wasting money on things you don’t need or paying too much.

Investing is like planting your saved seeds to grow a tree. You put your money in a place where it can grow over time, like a bank account or stocks. But be careful, investing can be risky, so you should learn about it first.

Understanding money is a big part of life. Learning about financial literacy early helps you make better decisions and can lead to a future with fewer money worries.

Also check:

Advantages and Disadvantages of Financial Literacy

250 Words Essay on Financial Literacy

Financial literacy means knowing how to manage your money smartly. It’s like learning a new language, but instead of words, you learn about savings, budgeting, and how to make your money grow. Just as you need to know math to solve problems, you need financial literacy to make good choices with money.

Saving Money

Think of saving money as a game where the goal is to keep as many coins as you can in a piggy bank. You do this by spending less on things you don’t need. Saving is important because it’s like having a safety net on a trampoline; it’s there to catch you if you fall or if something unexpected happens.

Making a Budget

A budget is a plan for your money. It’s like a map that shows you how to spend your allowance or earnings from chores. When you make a budget, you decide what you’ll spend on snacks, games, or saving for something big like a new bike. Sticking to your budget means you’re in charge of your money, not the other way around.

Smart Spending

Smart spending means thinking carefully before you buy something. Ask yourself, “Do I really need this?” or “Can I find it cheaper somewhere else?” It’s like choosing the best candy in the store, so you get the most yumminess for your money.

Growing Your Money

Growing your money is about making it increase over time. You can do this by putting your savings in a bank account that pays you interest, which is like a thank you gift from the bank for keeping your money there. Or, you can learn about investing, which can help your money grow even more.

Understanding financial literacy helps you make smart choices now and prepares you for the future. It’s a tool that helps you build the life you want, just like learning to read and write.

500 Words Essay on Financial Literacy

Financial literacy is knowing how to manage money. This means understanding how to earn, save, spend, and invest your money wisely. It’s just like learning how to read or write, but instead of letters and words, you’re learning about numbers and dollars. When you’re financially literate, you can make smart choices with your money that will help you in the future.

Earning and Saving Money

The first part of being good with money is learning how to earn it. This can be from a small job, like helping neighbors or getting an allowance from your parents. Once you have some money, it’s important to save it. Saving money means putting it away for later, like in a piggy bank or a savings account at a bank. This way, you can have money for things you’ll need in the future, like a new bike or college.

Spending Money Wisely

Spending money is something everyone has to do, but spending it wisely is a key part of financial literacy. This means thinking about whether you really need what you’re buying and if you’re getting it at a good price. It’s okay to spend money on fun things, but you should make sure you have enough for the things you need first, like food and clothes.

A budget is a plan for how to spend your money. It helps you keep track of what you earn, what you need to spend on things like food and rent, and how much you can save or use for fun stuff. Making a budget can help you make sure you don’t run out of money and can save up for big things you want in the future.

Investing is a way to make your money grow. Instead of just saving it, you can use your money to buy things that might increase in value over time, like stocks or property. It’s a bit more complicated and can be riskier, but if you learn about it, investing can help you build more money for the future.

Why Financial Literacy is Important

Being good with money is important because it helps you feel secure and ready for the future. If you know how to manage your money, you won’t have to worry as much about not having enough for things you need or want. It also means you can help your family and even give back to your community by donating to people who need help.

Financial literacy is a big part of growing up and becoming independent. It’s about being smart with your money, so you can take care of yourself and your loved ones. Learning about earning, saving, spending, budgeting, and investing can seem like a lot, but step by step, it can become as easy as reading your favorite book. Start learning about money now, and you’ll be ready for all the adventures life has to offer!

That’s it! I hope the essay helped you.

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The case for financial literacy education

Paddy Hirsch

Financial literacy education does not have a great reputation . It's a huge industry, spawning all sorts of books, web channels, TV shows and even social media accounts — but past studies have concluded that, for the most part, financial literacy education is kind of a waste of time .

For example, a much cited paper published in the journal Management Science found that almost everyone who took a financial literacy class forgot what they learned within 20 months, and that financial literacy has a "negligible" impact on future behavior. A trio of academics at Harvard Business School, Wellesley College and the Federal Reserve Bank of Chicago, produced a working paper that showed that mandated Finlit classes given to high schoolers made no difference to the students' ability to handle their finances. And the list goes on .

The name that comes up again and again in these papers and reports on financial literacy is Annamaria Lusardi. She is a professor of economics and accountancy at the George Washington University School of Business. She's also the founder and academic director of the Global Financial Literacy Excellence Center at GWU. She and Olivia Mitchell, a professor at the University of Pennsylvania's Wharton School of Business, published a paper in 2013 that amounted to a study of studies about financial literacy , and it was quite critical of the way financial literacy programs are taught. This study of studies has been widely quoted ever since.

New Hope For Financial Dullards

Ten years later, Lusardi and Mitchell are out with a new paper, similarly titled , but much more upbeat. "The Importance of Financial Literacy: Opening A New Field," picks up where their 2013 study of studies left off, and it draws on the two women's experience teaching personal finance.

The first thing they establish is that the level of financial literacy, globally, is just as woeful as it was when they released their seminal paper ten years ago. To establish this, they conducted a survey that asked participants three questions, which focus on interest rates, inflation and risk diversification.

"These are simple questions," Lusardi says, "Yet they test for basic and fundamental knowledge at the basis of most economic decisions. In addition, answering these questions does not require difficult calculations, as we do not test for knowledge of mathematics but rather for an understanding of how interest rates and inflation work. The questions also test knowledge of the language of finance."

How did respondents do? Let's just say there is room for improvement. (You can test your own knowledge by checking out the paper ).

"Only 43% of the respondents (in the US) are able to answer all of the questions correctly," Lusardi says, adding that the level of financial illiteracy is particularly acute amongst women. "Only 29% of women answer all three questions correctly, versus 48% of men," she says, adding that this gender difference is strikingly stable across the 140 countries that they ran the test in.

"We also see ... that women are much more likely than men to respond that they do not know/refuse to answer at least one financial literacy question," she says. Such gender differences are likely to be the result of lack of self-confidence, in addition to lack of knowledge."

Young people are also more likely to be disadvantaged in this area, Lusardi and Mitchell found, as are people of color. "The young display very low financial literacy, with only one-third being able to answer all three questions correctly. Half of Whites could correctly answer all three questions, versus only 26% of Blacks and 22% of Hispanics."

This is a problem, Lusardi says, not just because it means that many people are ill equipped to handle an increasingly complicated and complex financial landscape that can impact their earnings and long-term wealth. There are obvious social implications to the fact that white males appear to have a significant edge on the rest of the population in this area. And if that isn't enough, Lusardi says, it's also a problem for the economy.

"On average, Americans spend seven hours per week dealing with personal finance issues, three of which are at work. People with low financial literacy spend double that amount," she says. The impact on productivity of people spending most of an entire working day on their personal finances whilst at work is considerable, she goes on. Add in the consequences of mismanagement of assets, investments, mortgages and other debt, and there is a significant potential effect on the economy.

Lusardi says this idea, that the damage wrought by a lack of financial literacy might extend beyond the individual — to companies and even to the economy has not escaped the notice of governments.

"Influential policymakers and central bankers, including former Fed Chairman, Ben Bernanke, have ... spoken to the critical importance of financial literacy," the paper says. "Additionally, the European Commission has recently acknowledged the importance of financial literacy as a key step for a capital markets union. Some governments have ... implemented financial literacy training in high schools. Several years ago, the Council for Economic Education (CEE 2013) established National Standards for Financial Literacy, detailing what should be covered in personal finance courses in school."

Fixing The Flaws

A decade ago, Lusardi and Mitchell were somewhat critical of the financial literacy courses offered by companies and schools. The programs were generally not effective, they said, not because the concept of personal finance education was flawed per se, but because the various programs were generally not well resourced, and often poorly conceived.

"Most of these (courses) in the US were unfunded," Lusardi says. "There was no curriculum. There were no materials, and teachers were hardly trained. So the gym teacher was teaching financial literacy, or anybody they could find. This is, of course, not going to work. It wouldn't work for any topic. If you have a course in French and the teacher doesn't speak good French, (students) are probably not going to learn good French either."

Moreover, the classes, whether taught in schools or in corporate offices, tended to provide one-shot, one-size-fits-all instructions, with little or no follow-up. Lusardi says that was a recipe for failure. But those organizations that have recognized the need for financial literacy programs, and that have persisted in developing them, have made progress, she says.

"Many programs have moved beyond very short interventions, such as a single retirement seminar or sending employees to a benefits fair, to more robust programs," Lusardi says. "Financial literacy has now become an official field of study in the economics profession. Many initiatives at national levels have been launched, and more than 80 countries have set up national committees entrusted with the design and implementation of national strategies for financial literacy."

Lusardi says it's particularly important to teach and consolidate principles of good personal finance as early as possible, which means starting at home — where children are likely to model good financial habits — and in school. To that end, the Programme for International Student Assessment in 2012 added financial literacy to the set of topics that 15-year-old students need to know to be able to participate in modern society and be successful in the labor market.

Lusardi says that in the decade since she and Mitchell released their 2013 report, their experience teaching financial literacy has proved that these programs, properly taught, can work.

"Our research shows that much can be done to help people make savvier financial decisions," she says, noting that a successful course will help people grasp key fundamental financial concepts, particularly financial risk and risk management. It will help them understand the workings of specific financial instruments and contracts, such as student loans, mortgages, credit cards, investments, and annuities. It will also make them aware of their rights and obligations in the financial marketplace.

Most importantly of all, of course, it will attract and retain the students' interest, which isn't always easy in the dry world of finance.

"I teach very differently now because of my research," Lusardi says. "I say, what do you think this course is about? And as you can imagine, most of the students think it's about investing in the stock market. That's what personal finance is associated with. And I tell them, 'No, this is a happiness project. We talk about all of the decisions that are fundamental and important in your life. And I want to teach you to make them well, because if you do, you are going to be happy.'"

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The Importance of Financial Literacy: Opening a New Field

We undertake an assessment of our two decades of research on financial literacy, building on our empirical research and theoretical work casting financial knowledge as a form of investment in human capital. We also draw on recent data to determine who is the most – and least – financially savvy in the United States, and we highlight the similarity of our results in other countries. A number of convincing studies is now available, from which we draw conclusions about the effects and consequences of financial illiteracy, and what can be done to fill these gaps. We conclude by offering our thoughts on implications for teaching, financial literacy programs, and future research.

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Indian Exams /

Essay on Financial Literacy for Students in English

Updated on
May 8, 2024

Financially literate individuals can manage debt responsibly and avoid falling into cycles of debt. They say, ‘Making money is easier than managing it.’ Every individual, young and old, must know what financial literacy is. It allows us to make informed decisions regarding budgeting and money management. Today, we will discuss an essay on financial literacy for students.

Table of Contents

1.1 Importance of Financial Literacy
1.2 Digital World
1.3 Earn, Invest, and Save
1.4 Conclusion

Long Essay on Financial Literacy

We all love spending money and buying new stuff for ourselves and our loved ones. A lot of people work very hard all their lives and save a huge sum of money, but they are not able to manage it. This is because a lot of us are not aware of financial literacy. According to the Reserve Bank of India, more than INR 18,830 crores is lying unclaimed in Indian banks. This money belongs to people who have not claimed it in more than ten years. And no, it is not black money.

It is hard to believe that, people can save so much when they don’t know how to spend or manage their money. Most people save money or build assets even in their retirement years. There are four reasons for doing so:

Unforeseen costs
Fear of running out of money and
Feeling secure

Quick Read: Essay on Money

Importance of Financial Literacy

Financial literacy is as crucial as education. We know that money once spent cannot be recovered, and that is where financial literacy helps us out. The first step in understanding the importance of financial literacy is to ask yourself this question, ‘why earn money if you can’t spend it?’

Financial literacy can help us develop budgeting skills . All students who are dependent on their parents for their monthly pocket money can learn how to allocate their money wisely, prioritize expenses, and save, if possible.
Simple financial concepts like interest rates, loan terms, and credit scores can help us make informed decisions regarding borrowing money.
The more you save and invest, the more you will have for your future. Financial education will allow you to invest and save your hard-earned money safely.
Financial education can make us independent and self-sufficient. It provides exposure to investment strategies and options and financial planning so that we can build wealth over time.
Financial education can save us from online scams and fraudsters, who are always ready to devour our money.
We can mitigate or manage our financial risks by purchasing insurance coverage, planning unforeseen expenses, and investing wisely.
A lot of people work hard, even in their retirement years. Financial literacy can help people understand concepts like retirement accounts, employer-sponsored plans, and Social Security benefits to make informed decisions about saving for retirement.

Quick Read: Essay on Voting Rights in India

Digital World

The 21st century is a digital age. There are over 5.35 billion internet users in the world. Our traditional ways of making transactions are now being replaced by digital transactions, like card payments or something more unique, the UPI.

Financial literacy is turning the wheel of economies all over the world. Financial literacy allows people to benefit from digital services, such as government schemes, online payments, e-commerce, health services, etc. Most smartphone users are making digital payments, but that does not mean that they are financially literate.

Financial literacy in the digital age is crucial to learning about stocks, bonds, mutual funds, trading platforms, and cryptocurrency markets. With financial literacy, we can create budgets, analyze spending patterns, and make informed decisions about saving and investing.

Quick Read: Elections in India Essay

Earn, Invest, and Save

Financial literacy involves the cycle of earning, investing, and saving. A person can have one or more sources of income, like salary, wages, bonuses, commissions, etc. Financially literate individuals can easily enhance their earning potential by pursuing education and career opportunities.

Before making any investments, financial literacy differentiates between assets and liabilities. Everybody wants to invest their money in assets with higher return rates. However, investments often involve different types of risks, such as market, liquidity, currency, and inflation risks.

Experts say that we must save at least 12 per cent of our income. We all need money in times of emergencies, and that is where our savings come into use.

Quick Read: Essay on A Stitch in Time Saves Nine

Economists say that financial literacy is an important skill to survive in the digital world. The knowledge and skills offered by financial literacy are important to managing our money effectively and becoming financially independent, economically stable, and socially mobile.

Ans: Financial literacy is as important as education. We know that money once spent cannot be recovered, and that is where financial literacy helps us out. The first step in understanding the importance of financial literacy is to ask yourself this question, ‘why earn money if you can’t spend it?’ Financial literacy can help us develop budgeting skills . All students who are dependent on their parents for their monthly pocket money can learn how to allocate their money wisely, prioritise expenses, and save.

Ans: Financial literacy can help students develop budgeting skills. Students can learn how to manage their personal finances. Students can make informed decisions about their financial steps and invest wisely. Financial literacy can help students learn how to avoid falling into debt traps. Students can develop their long-term financial goals and develop plans to achieve them.

Ans: Financial literacy refers to the knowledge and skills about the financial tools, concepts, and processes required to make informed decisions about personal finances. A financially literate person can manage his or her finances more effectively than someone who does not have the required knowledge and skills.

Shiva Tyagi

With an experience of over a year, I've developed a passion for writing blogs on wide range of topics. I am mostly inspired from topics related to social and environmental fields, where you come up with a positive outcome.

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(PDF) Financial literacy and the need for financial education: evidence
The Importance of Financial Literacy
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COMMENTS

Essay on Financial Literacy for Students and Children
Financial literacy can enable an individual to build up a budgetary guide to distinguish what he buys, what he spends, and what he owes. This subject additionally influences entrepreneurs, who incredibly add to financial development and strength of our economy. Financial literacy helps people in becoming independent and self-sufficient.
The importance of financial literacy and its impact on financial
In this editorial, we provided an overview of the papers in the inaugural issue of the Journal of Financial Literacy and Wellbeing. They cover topics that are at the center of academic research, from the effects of financial education in school and the workplace to the importance of financial literacy for the macro-economy.
Financial Literacy: What It Is, and Why It Is So Important To Teach Teens
Financial literacy is the education and understanding of various financial areas. This topic focuses on the ability to manage personal finance matters in an efficient manner, and it includes the ...
Why Financial Literacy Is Important And How You Can Improve Yours
Financial literacy refers to your grasp and effective use of various financial skills, from budgeting and saving to debt management and retirement planning. It equips you with the knowledge to ...
The Importance of Financial Literacy
To the statement, "I feel stressed about my personal finances in general," 67% of students at four-year public universities (64.9% at UC Berkeley) agreed. On answering questions regarding financial knowledge, students at four-year public universities scored on average 3.38 out of 6 points, while the average UC Berkeley student scored 3.4 ...
Financial Literacy
Importance of Financial Literacy. Obtaining financial literacy is one of the most important things an individual can do to ensure prolonged financial stability. Listed below are some real-world facts that should emphasize the overall importance of attaining financial literacy. It is estimated that about 78% of Americans live paycheck to paycheck.
What Is Financial Literacy and Why Should You Care?
Financial literacy to a child may mean teaching the basics of spending, saving and giving. To some adults, financial literacy may mean helping someone open up a bank account or preventing someone from engaging with a predatory lender. For others, financial literacy could be learning how to budget or track spending—allowing you to develop a ...
What is financial literacy? (article)
While saving money is an important part of financial literacy, it is not the only thing you should be doing. Investing your money can be a great way to grow your wealth over time. Additionally, it is important to be aware of the different types of accounts and products available to you, so you can choose the one that best meets your needs.
Financial Literacy: The Importance in the Modern World Essay
For instance, the financial crisis of 2008 led to a loss of $2 trillion dollars (Merle). However, it is noteworthy that the results of such outcomes were external factors rather than personal actions. Hence, it is necessary to learn the fundamentals of financial literacy from a young age in order to have a carefree retirement, emergency funds ...
Financial literacy and the need for financial education: evidence and
Financial literacy and ... The economic importance of financial literacy: theory and evidence. Journal of Economic Literature, 52(1), 5-44. Article Google Scholar Lusardi, A., Mitchell, O. S., & Oggero, N. (2018). The changing face of debt and financial fragility at older ages. American Economic Association Papers and Proceedings, 108 ...
PDF The importance of financial literacy and its impact on financial wellbeing
The number of papers on financial literacy has increased exponentially ... workplace to the importance of financial literacy for the macro-economy. It also covers financial inclusion and how financial literacy can promote the use of basic financial instruments, such as bank accounts. Moreover, it covers financial decision making in the
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Everfi, a digital instructional company, offers a free seven-session program for high school financial literacy. Students take interactive, self-guided lessons in topics like banking, budgeting ...
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Financial literacy as the ability to collect important information, and also differentiating between diverse financial option, discussing financial issues, planning and proficiently answer that affect financial decision making. Economic issues related to the understanding about economic issues in a country or worldwide.
The Importance of Financial Literacy
College students and financial literacy: What they know and what we need to learn. Proceedings of the 33rd Conference of the Eastern Family Economics and Resource Management Association (pp. 102-109).
The Importance of Financial Literacy: Opening a New Field
The Importance of Financial Literacy: Opening a New Field. We undertake an assessment of our two decades of research on financial literacy, building on our empirical research and theoretical work casting financial knowledge as a form of investment in human capital. We also draw on recent data to determine who is the most - and least ...
(PDF) The importance of financial literacy and its impact on financial
Importantly, financial literacy matters: it helps people make. savvy financial decisions, including being less influenced by framing, better understand information. that is provided to them ...
The Economic Importance of Financial Literacy: Theory and Evidence
Annamaria Lusardi & Olivia S. Mitchell, 2014. "The Economic Importance of Financial Literacy: Theory and Evidence," Journal of Economic Literature, American Economic Association, vol. 52 (1), pages 5-44, March. citation courtesy of. Founded in 1920, the NBER is a private, non-profit, non-partisan organization dedicated to conducting economic ...
The Importance of Financial Literacy and Its Impact on Financial
In this editorial, we provided an overview of the papers in the inaugural issue of the Journal of Financial Literacy and Wellbeing.They cover topics that are at the center of academic research, from the effects of financial education in school and the workplace to the importance of financial literacy for the macro-economy.
Essay on Financial Literacy
Financial literacy is knowing how to manage money. This means understanding how to earn, save, spend, and invest your money wisely. It's just like learning how to read or write, but instead of letters and words, you're learning about numbers and dollars. When you're financially literate, you can make smart choices with your money that ...
PDF The Economic Importance of Financial Literacy: Theory and Evidence
4 While there is a substantial theoretical and empirical body of work on the economics of education,4 far less attention has been devoted to the question of how people acquire and deploy financial literacy. In the last few years, however, a few authors have begun to explore the
The case for financial literacy education : Planet Money : NPR
"The Importance of Financial Literacy: Opening A New Field," picks up where their 2013 study of studies left off, and it draws on the two women's experience teaching personal finance.
The Importance of Financial Literacy: Opening a New Field
The Importance of Financial Literacy: Opening a New Field. We undertake an assessment of our two decades of research on financial literacy, building on our empirical research and theoretical work casting financial knowledge as a form of investment in human capital. We also draw on recent data to determine who is the most - and least ...
A Study on Financial Literacy and Financial Behaviour
Financial literacy helps individuals make more. assertive and e fficient decisions in the monetary context of their lives. This paper measures. the level of financial literacy of individuals and ...
Essay on Financial Literacy for Students in English
Financial literacy involves the cycle of earning, investing, and saving. A person can have one or more sources of income, like salary, wages, bonuses, commissions, etc. Financially literate individuals can easily enhance their earning potential by pursuing education and career opportunities.

Essay on Financial Literacy for Students and Children

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Financial Literacy: What It Is, and Why It Is So Important To Teach Teens

What Is Financial Literacy?

The Bottom Line

Key Takeaways

Pitfalls of Illiteracy

Scope of Financial Literacy

Why Financial Literacy Matters

Millennials' Challenge

Benefits of Financial Literacy

Strategies to Improve Financial Literacy Skills

Create a Budget

Pay Yourself First

Pay Bills Promptly

Get Your Credit Report

Check Your Credit Score

Manage Debt

Invest in Your Future

Example of Financial Literacy

Why Is Financial Literacy Important?

How Do I Become Financially Literate?

What Are Some Popular Personal Budget Rules?

What Are the Principles of Financial Literacy?

The Importance of Financial Literacy

The State of Financial Literacy

But how do college students fare?

The Changing Landscape

Education Reform

Program Recommendations

Take Home Points

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What Is Financial Literacy and Why Should You Care?

Financial literacy is about improving your life

Three core principles for your personal finances

1. Budget or track your spending

2. Establish an emergency fund

3. Develop an understanding of interest rates

First individuals, then families, then the economy

Notes and References

Financial Literacy

What is financial literacy?

Financial Literacy: The Importance in the Modern World Essay

Works Cited

Financial literacy and the need for financial education: evidence and implications

1 Introduction

2 How financially literate are people?

2.2 Cross-country comparison

2.3 Who knows the least?

3 Does financial literacy matter?

4 The way forward for financial literacy and what works

5 Concluding remarks

Abbreviations

Acknowledgements

Availability of data and materials

Contributions

Corresponding author

Ethics declarations

Publisher’s Note

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Should All Schools Teach Financial Literacy?

Importance of Financial Literacy

Financial tools – financial literacy

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