This article has been written by Shio Murti Thakur.

Introduction

Financial knowledge is the ability to understand and employ different sets of financial skills in an efficient way, including personal financial management, savings, and budget management. Financial literacy helps an individual achieve financial stability in his life.

In the ever changing dynamics of the financial environment, financial literacy since early childhood has become of paramount importance for making an individual financially independent. Financial skills like budgeting and saving go a long way towards creating wealth for an individual. Early financial knowledge allows an individual to traverse the path of financial dynamics and plan their savings, fund the education of their kids, and plan a retirement corpus for themselves in an efficient way. By navigating the intricacies of personal finance, helping adolescents with the avenues to make informed decisions, and nurturing a sense of financial responsibility.

Download Now

The present article looks into how financial literacy empowers individuals to take on challenges, seize opportunities, and secure their financial lives in the long term. In a rapidly evolving world, financial education is important to secure younger individuals financial goals from an early age. The RBI data manifests a critical gulf in financial literacy amongst adults, emphasising the urgency of financial education in schools. Dr. D. Subbarao, former Governor of RBI, is of the opinion that “financial literacy strengthens individuals with knowledge and skills necessary to make informed decisions about finance, investments, and future planning. A prudent financial decision is critical to economic well being. Financial literacy and its importance for making investment accessible across India. The survey by S&P shows that 75% of Indian adults and older lack the concept of basic financial understanding. This gap is greater for women as far as financial literacy goes. This gap can only be bridged by building a financial curriculum from an early age for individuals, which will impart the necessary financial skills throughout each stage of their career. Financial literacy will inspire increased involvement among the youth in the financial markets and other investment avenues to set financial goals and objectives, develop credit discipline, and avail facilities of financial avenues from the institutions.

The risk of illiteracy

Financial literacy empowers individuals to make investment decisions with the help of a set of financial skills and knowledge. One of the common pitfalls of financial illiteracy is the amalgamation of debt.

The importance of early financial education

A financially illiterate individual without any knowledge of credit scores, interest rates, responsible borrowings, or the magic of compounding may find himself in massive debt. Dr. Swati Bhatt, a lecturer at Princeton University, believes that early financial literacy lays the groundwork for responsible financial behaviour and empowers people to make informed financial decisions throughout their lives.

Examples of successful financial education initiatives

Some organisations and government initiatives have been professing awareness about financial literacy at the grassroots level. Some of them, namely the National Institute of Securities Markets (NISM), are promoting financial literacy in children through their programmes and initiatives.

Another financial literacy initiative named “Money Smart Kids,” launched by the Securities and Exchange Board of India (SEBI), introduces schoolchildren to basic financial concepts through interactive workshops and games, fostering a culture of financial responsibility. 

Long-term effects on financial stability

By teaching financial literacy to young minds, the long-term effects on financial stability can be leveraged. This is because a financially savvy mind will invest wisely by creating a diversified portfolio, managing debt wisely, using mental budgeting, and exercising self-control for long-term financial goals. Mental budgeting lets you calculate and evaluate future and present savings expenses and debt. This helps in the non-accumulation of debt. This financial literacy metamorphoses into prosperity and justifiable development and creates financial sustainability in individuals, society, enterprises, and national economics.

Responsible spending habits

A financial education since early childhood in an individual inculcates a sense of responsibility and ownership in him that prioritises his needs over his wants and checks his overspending. It is a natural habit for an individual to overspend and thus accumulate debt without much income.

Boosts saving

Financial literacy since early childhood ingrains a sound knowledge of the decision-making process in the mind to navigate the financial arena. Here, schools and parents can play a decisive role as motivators in shaping young minds outlook towards money matters. Thus, an individual uses this financial acumen to the best of his advantage. Thus, it boosts savings and increases his financial worth.

Preparing for emergencies

There are lots of challenges and unpredictability when traversing daily chores, and it’s mainly due to money matters. When an individual is empowered with knowledge and resilience in money matters, the path to financial success becomes easier. A financially savvy person can gauge any unseen eventualities beforehand, like recession, a job loss, or any financial emergency. Only people who are equipped with financial knowledge have preparedness or know the importance of creating an emergency fund to weather storms from any unseen eventualities, and that too without compromising their financial status.

Early financial education is the stepping stone to creating a knowledgeable group of individuals. The idea of inculcating and enshrining money habits, planning for future financial goals, understanding debt and credit, and being prepared for future uncanny events cannot be underestimated. A financially savvy person recognises the significance of creating an emergency corpus. In the present market scenario, we should always be prepared with an emergency fund with at least six months of expenses. It is a decisive way to avoid debt.

Parental saving socialisation

We all develop financial education through parental financial socialisation, which inculcates and develops financial skills and knowledge to make responsible financial decisions throughout our lives. Its parents who first impart financial knowledge through conversation converging on money matters by sending kids to markets to buy household articles to know firsthand knowledge of financial intricacies.

This can include:

  • Discussing budgeting, savings, and financial goals.
  • Setting up bank accounts.
  • Monitoring spending.
  • Imparting financial education and habits.
  • Help them create a home budget.
  • Saving and investing for the future.
  • Increased saving.

 A financial education since the nascent age goes a long way in creating a good investment and amassing wealth. Most people are not financially savvy and lack knowledge of financial terms such as interest rates, compounding, credit scores, debt, and budgeting. Any individual with a solid financial mind can calculate the good financial value of their investment with a set of good financial skills. So we may make the assumption that early financial literacy helps in making informed financial decisions, which helps in wealth creation and financial security.

Facilitates debt reduction

A financially savvy person is less likely to fall into the trap of debt and financial loss compared to a financially uninformed person. A person with a sharp mind and savvy financial skills can avoid garnering unnecessary loans or splurging more than earning. This can only be achieved by educating young minds in all spheres of finance to save them from  debt traps. It is with good financial acumen that a person achieves debt reduction in his financial goals.

So, a financially savvy individual is less likely to fall into the trap of debt accumulation and financial stress over a period of time. Any individual can ward off financial stress, debt, and scams and minimise tax burdens by skilfully investing and thus improving their credit score.

Enhance financial planning

As per some research and studies, financially savvy individuals and those with literacy are able to plan their future goals, including retirement planning and children’s education and marriage, and accumulate wealth to cope with this purpose. Early financial education equips and arms an individual with financial vision and goals and helps them achieve a secure future.

Improved credit management

A financially educated person, from an early age, uses improved credit management to secure the future with good investment decisions. An illiterate financial person can accumulate huge debt through bad spending without planning. Which might steer towards a negative credit score, bankruptcy, and financial pitfalls. And thus spell doom for a person financially.

Increased financial inclusion

The government has some schemes running for financial inclusion for vulnerable sections of society to uplift them socially. Early financial inclusion can close the gap in India by equipping them to make informed financial decisions for their own good.

Mitigates financial stress

An early financial education creates an informed investor and strengthens his ability to manage his finances in a prudent manner. This makes the individual financially well off due to prudent investment.

Provides long-term financial stability

 Early exposure to financial tools for an individual creates financial independence and wealth accumulation in the long run. The accumulated wealth and satisfaction of it are ingrained in a person’s personality. As a kid, after being educated in financial matters since early days, he makes well-informed financial decisions and manages his resources later efficiently.

Conclusion

Introducing the finance curriculum in school education can significantly transform our country’s financial landscape. By equipping students with financial knowledge and skills from an early age, we can empower them to make informed financial decisions throughout their lives.

A comprehensive finance curriculum should cover various aspects of personal finance, including budgeting, saving, investing, credit management, and financial planning. By learning these concepts, students will gain a deeper understanding of how money works and how to make it work for them.

Furthermore, financial education can help students avoid costly mistakes and protect themselves from financial risks. By understanding the pitfalls of debt, predatory lending practices, and investment scams, students can make informed choices and safeguard their financial future.

A financially literate population can have a positive impact on the economy as a whole. Financially savvy individuals are more likely to make sound investment decisions, contribute to retirement savings, and plan for their financial future. This can lead to increased economic stability and growth.

References

RELATED ARTICLESMORE FROM AUTHOR

LEAVE A REPLY

Please enter your comment!
Please enter your name here