Financial literacy is an understanding of basic financial concepts, such as investments, savings, risks, and decision-making. The goal is, accordingly, to develop individual and society’s wealth.
In other words, financial literacy is a form of financial independence and financial education. Especially in the 21st century, financial literacy becomes more crucial as financial technology or digital finance continues to grow.
This literacy is in line with the United Nations’ Sustainable Development Goals (SDGs). In particular, the first and the eight goals suit the literacy well.
However, financial literacy appears to be a foreign term. A 2018 research by the OECD’s Program for the International Assessment of Adult Competencies (PIAAC) disclosed that Turkey, Chile, Israel, Spain, and the UK had low financial scores out of 31 countries.
In another study by GoBear, Indonesians still had a low score compared to its Asia-Pacific neighbors. In the US, African Americans are assumed to possess a lower financial literacy, a report from George Washington University said.
Also Read: Financial Roadmap for Investment and Savings
Why Financial Literacy is Important and What Should be Understood
Financial literacy’s importance is due to its close association with daily lives. In a bigger picture, literacy also presumably contributes to the eradication of wealth gaps.
To evaluate this literacy, it is paramount to assess individuals’ understanding of personal finance knowledge. The P-Fin Index suggests eight components each individual should understand.
Accordingly, they are earning, consuming, saving, investing, borrowing and managing debt, insuring, comprehending risk, and uncertainty and go-to information sources.
Daily financial activities and decisions reflect individuals’ understanding of it. For instance, making calculations when shopping online, understanding deposits and bank accounts, knowing how currency rates work, and managing a monthly budget are the smallest examples.
Despite its gravity, the international curriculum has not agreed to set the standardized courses pertinent to it. This, in addition, is considerably homework since financial literacy will matter more as time goes.
Also Read: 4 Simple Ways to Manage Your Finance Well