The pandemic has put not only lives in danger but also many out of jobs resulting in a financial crisis. This has alarmed people to save for the rainy days.
What is Financial Literacy?
Financial literacy is the understanding of financial concepts, components and skills such as budgeting, investing, borrowing, taxation and personal financial management. The absence of such skills is referred to as financially illiteracy.
Did you Know?
- Only 24% of the Indian population are financially literate.
- Only 33% of the world population are Financially literate.
Why is it necessary to be financially literate?
India when compared to other countries has the highest savings rate. But the savings are not invested rightly to benefit a higher return, this may be due to the complexity and complicity in the financial market.
Therefore to bridge this gap financial literacy is very important.
Apart from the above, a good financial literacy will lead to:
- Ability to make better financial decisions.
- Effective management of money and debt.
- Increase in ethical decision-making when selecting insurance, loans, investments, and using a credit card.
- Less financial stress and anxiety.
How to go about it?
1. Set realistic goals
First step may be building a small fund to cover your lifestyle for at least 6 months, this might help the rainy days. Saving the sum helps in confidence and satisfaction that comes from setting a goal and achieving it with a disciplined savings plan, is always a great feeling.
2. Invest in Financial knowledge
Understanding the practical application of important concepts such as risk profile, budgeting, inflation, asset allocation and dealing with market falls or volatility will be of huge help. To kick start the process, mutual funds are a safe bet.
3. Invest before you spend
Most of the time the mistake is the investment takes the back seat. Prioritize investing before spending. Set aside a percentage for investment.
4. Fear of Missing Out
Peer pressure can induce many to start investing in shares directly on the basis of tips or buying into options such as cryptocurrencies without having a proper foundation. However, given the higher risks in asset classes such as shares and crypto-currencies, one could face heavy losses. Limit such investments to a small 5-10 percent of the investable amount as a way to explore beyond the core of a diversified mutual fund portfolio.
Initiatives to Improve Financial Literacy
1. Initiatives by RBI
The RBI has started Project Financial Literacy, the objective of the project is to educate on basic banking this targets college students, senior citizens, women, rural and urban wage workers.
2. Initiatives by IRDA
The Insurance Regulatory and Development Authority conducts various awareness programmes to teach about the rights and duties of policyholders.
3. Initiatives by SEBI
The Securities Exchange Board Of India has initiated a multipronged approach to spread financial literacy all over India. Investor Awareness Programs/ Workshops are organized for educating investors and to spread awareness.
Like the saying goes "Financial problems are not fixed with money, but with the right financial education."
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