Remund (2010) describes financial literacy as a form of personal finance, which relates to the the ability of a consumer to understand and engage in both the short and long-term of financial planning. In principal, it is the knowledge required to make effective decisions with financial tools and resources. This can include cashflow management, financial reporting or accounting. Overall it is the general understanding of people’s ability to process economic information to make informed decisions. There are various components and definitions of financial literacy. Academics have broken it down into different areas and associated it ‘with behaviors and outcomes including day-to-day financial management skills (Hilgert, Hogarth, and Beverly 2003), retirement planning and accumulated wealth at retirement (Lusardi and Mitchell 2007, 2011), levels of debt and debt-related anxiety (Lusardi and Tufano 2009; Lusardi, Mitchell, and Curto 2010), and other outcomes related to financial and holistic well-being.’ (Adrian F. Ward, John G. Lynch Jr., 2019). A significant component for an organisations’ success is the skill level, knowledge and training of their staff. This includes their understanding of financial principles and monetary concepts. This includes an understanding of dealing with budgeting, saving, investing and risk management. The importance of financial literacy has grown over the years. So much so that educators are working to ensure that it is inclusive in students cirriculum. However, there is still evidence that shows only “17 states require high school students to take a course on financial literacy” (Forbes, 2015). Forbes (2015) identified that these courses have a direct correlation with a student’s ability to make comprehensive financial decisions. This also revealed that students who have taken financial literacy courses are more capable of saving Money, budgeting and making sound investment decisions. Financial literacy is important for various reasons. It helps the individual control their finances, understand how credit works, and make wise decisions on where to invest. Financial literacy education on money also impacts everyday life decisions, particularly when trying to maintain a family budget, buy a home, and save for retirement. Individuals must understand the problems that arise in the marketplace. This is the best way to protect themselves from becoming victims of financial ignorance. It has recently become such a significant issue that now States are getting involved to ensure financial education is embedded in school cirriculum. At the University of Hawaii in Monoa, a survey was conducted where students indicated that they were interested in knowledge about investing in their future, getting ahead financially after graduation, avoiding credit problems, and budgeting income and expense (Masuo, Kutara, Wall, & Cheang, 2007). Moreover, we are now observing insitutions in both the private and public sector that are making financial education a priority (National Credit Union Association, 2002). There are various factors of financial literacy:
Creating and maintaing a budget is a vital principle in order to keep up with your finances. Today, there are various applications that also help to make it easier for individuals to maintain their day-to-day finances on track.
There are various aspects in this area that require an individual to be able to calculate i.e. compound interest. Understanding the concept of interest better enables an individual to help make decisions between borrowing and paying back on their loans.
This is an aspect that is usually not prioritised. One example is an individual’s pension and his/her ability to save for the future sometimes seems very distant. But this needs to be something to consider early on for an individual’s financial management. The ability and concept surrounding saving is a set of skills that can be used throughout an individual’s lifetime.
A credit record is one that easily ruined and can affect various aspects of an individual’s life. It is harder to gain it back in case one would like to borrow or take out a mortgage.