Most people do not actually understand finances and topics like how the credit card works. Unfortunately, this can lead to huge problems. Financial literacy is highly promoted even by student movements like Turning Point USA due to how important it is for the future of economy.
Understanding Financial Literacy
At a basic definition level, financial literacy is all about a confluence of credit, debt and financial management, together with the knowledge that is needed in order to make a good financial decision. Many different things are included in financial literacy, like using credit cards, how the checking accounts work and how to take active steps to avoid falling into debt. Basically financial literacy will impact the average family’s daily issues as budgets are balanced, for whatever possible reason.
Unfortunately, financial literacy lack is quite a big problem, no matter how developed the economy of a country is. Nations from all around the world have populations that do not understand even financial basics. As an example, the US is now ranked globally at number fourteen when referring to financial literacy.
Why Is Financial Literacy Important?
- Consumers take on more financial decisions
For instance, more and more people seriously think about retirement planning. In the past, people just referred to pension plans as the main part of the retirement life. Nowadays, we see a constant increase in the number of people that use private pensions. Regular pensions will soon be a rarity.
- Complex available options
Modern consumers have to choose out of various savings and investment products. These are much more sophisticated now than what we saw in the past. Without financial literacy, it is practically impossible to make a really good choice. You now have to think about interest rates, maturities and so much more.
- Government Aid Went Down
One of the big retirement income sources in the past was the presence of Social Security. Right now the amount that is offered is definitely not enough. The exact same thing is expected in the future. In fact, by the year 2033 it is expected that Social Security fund will reach zero.
- People Live Longer
More money is practically needed for retirement now.
- Changing Financial Environment
The entire financial landscape is highly dynamic. Now, we are faced with a really global marketplace, having many more participants, together with increased factors that influence financial topics. Because the financial environment is quickly changing, Because of this, we need to be aware of what is happening and we have to fully understand how a change would modify our future prospects.
- Way Too Many Available Choices
Consumers can so easily be confused because of the existence of so many financial institutions. We now have brokerage firms, credit unions, credit card companies, financial planners, banks, mortgage companies and much more.
Financial literacy stands out as being crucial for the consumer that needs to save enough money to have the income that will be necessary during retirement. All this should be done while avoiding debt, foreclosures and defaults.