Financial Literacy: A vital skill for youth

Financial literacy is like having a roadmap for your money. It’s the ability to understand and use financial skills to make intelligent decisions about earning, spending, saving, and investing money. Being financially literate means you can confidently navigate the world of personal finance, making informed choices that set you up for a secure and prosperous future. It’s the key to managing your money wisely. A wide variety of information is included in financial literacy, including managing debt, budgeting, saving, investing, and understanding financial goods and services. It’s not just about building wealth but also about making intelligent choices supporting one’s financial goals.

Understanding Financial literacy

From about 1991 to 2022, financial products and services have become increasingly available. Due to significant economic and financial changes, India’s approach to financial literacy has changed significantly during the past three decades. Economic liberalisation was promoted between 1991 and 2000, creating an ideal environment for the growth of financial literacy. The next ten years marked a focus on digitalization and financial inclusion, as evidenced by programs like the Jan Dhan Yojana and the development of digital technologies. Rapid technological improvements in the 2010s changed financial services and influenced shifts in consumer behaviour.

From 2001 to 2010, the subsequent decade witnessed a renewed emphasis on financial inclusion as the government introduced initiatives like the Jan Dhan Yojana to provide every adult with a bank account. The advent of the 2010s brought forth rapid technological advancements, transforming the delivery of financial services through mobile banking, online payments, and fintech applications. These innovations provided convenience and empowered individuals to be more informed and engaged in their financial decisions.

As the timeline progresses to 2021-2023, India prioritises financial literacy, recognising its significance for economic growth and individual well-being. Initiatives such as the Financial Literacy Index (FLI) have been introduced to measure progress and identify areas for improvement. Complementing this historical analysis, recent insights from the 2022 Global Financial Literacy Survey reveal a positive trajectory in India’s financial literacy score, increasing from 33% in 2011 to 35% in 2021. However, a significant gender gap remains, with women consistently scoring lower than men in both years.

India’s journey is consistent with the worldwide trend toward depending on various financial instruments. A substantial 66% of Americans need more financial literacy, which can result in problems like unmanageable debt and unfavourable financial outcomes. However, some resources provide empowerment and education opportunities, such as the US government-sponsored Financial Literacy and Education Commission. Promoting financial literacy is still essential for helping people make educated decisions and achieve long-term financial well-being in the ever-changing world of global finance.

Why Financial Literacy Matters for Youth

Youth who acquire financial literacy are likely to be successful in life and can make smart financial choices, navigate aware of dangers, and realise their financial goals. The following arguments highlight the critical need for financial literacy for young people:

Financial literacy is crucial for young people because it gives them the information they need to understand the complicated nature of personal money. Young people who receive financial education are better equipped to manage their debt, save for the future, invest, and create budgets. With this knowledge, you can avoid common financial problems like overspending and poor money management and instead build the foundation for a stable financial future. Young people who are financially literate are better prepared for career and life planning because they understand ideas like long-term financial objectives and pay negotiation. Additionally, financial literacy encourages entrepreneurship and makes it easier to adjust to economic changes.

Financial literacy in the digital age involves knowledge of technology, allowing young people to use digital financial platforms and online banking. In the end, encouraging financial literacy ends generational cycles of monetary distress by giving young people the resources they need to contribute to economic growth and create more secure financial futures.

Principle of Financial Literacy

Several fundamental ideas drive financial literacy, allowing people to manage their money wisely and with knowledge. The following are five core ideas of financial literacy:

Budgeting: The base of financial literacy is budgeting, which means figuring out an in-depth plan for allocating your money. Living within a person’s means, saving for goals, and avoiding needless debt are made possible by knowing one’s sources of income, keeping track of expenditures, and setting spending priorities.

Saving and Investing: The significance of saving and investing is highlighted by financial literacy for both short- and long-term financial objectives. Acquiring knowledge of various investment vehicles, risk management techniques, and savings instruments enables people to accumulate wealth gradually and safeguard their financial future.

Debt Management: A critical financial literacy component is managing debt effectively. This involves knowing the various debt kinds, interest rates, and repayment plans. Financially literate people can make well-informed choices on taking on debt, reducing high-interest debt, and formulating repayment schedules.

Risk Management and Insurance: Financial literacy encompasses understanding risk and the importance of mitigating it through insurance. People gain the ability to evaluate their level of risk tolerance, investigate their options for property, health, and life insurance, and make decisions that safeguard their financial security in the event of unexpected events.

Understanding Financial Products: Financial literacy involves knowledge of various financial products and services. Understanding the terms and conditions of credit cards, loans, investment instruments, and financial products is part of this. People can make decisions that align with their financial objectives when they know the characteristics and consequences of financial products.

Importance of Financial Literacy

In today’s world, financial literacy is essential for several important reasons:

• Facilitates wealth-building and long-term planning.
• Essential for entrepreneurial success and effective business management.
• It equips individuals to adapt to economic changes and make sound financial decisions.
• Contributes to financial stability and resilience.
• Empower individuals to make informed financial decisions.

Example of Financial Literacy

Vishal is a high school teacher who tries to inform her students about financial literacy through her curriculum. Through her curriculum, Vishal, a high school teacher, aims to educate her students about financial literacy. He teaches students the fundamentals of several financial topics, including investing, insurance, tax planning, debt management, education, and retirement savings. Later in life, Vishal’s students can use these ideas to pay for memorable experiences like going to the cinema, renting an apartment, or even landing their first job. His students might manage the student loans they need to pay for their college education if they understand concepts like interest rates, opportunity costs, debt management, compound interest, and budgeting. This could keep them from accumulating dangerous debt and affecting their credit scores. In the same way, he expects that some subjects, including income taxation and retirement planning, will eventually prove helpful to every student, regardless of what they choose to do with their lives after high school.