finance essay topics

finance essay topics

The Importance of Financial Literacy in Today’s Society

1. The Basics of Financial Literacy

Stacey has recently been introduced to a program which educates young people about finances and is giving it a go. She is pleasantly surprised to find herself interested and an information junkie as she learns about financial matters that concern all of their futures. Of course, she wishes that she had learned these things sooner, but she is trudging along and she thinks that her financial future may not be as gloomy as she had previously thought.

In looking for a new roommate, Stacey has only one criterion: they must have good credit. She knows it is a shallow thing to judge people by, but at the same time, she knows that it’s going to be difficult for her to get herself out of this situation. Once upon a time, she was careful with money, saving and never buying anything on credit. That was when she was with her parents’ money.

Stacey knows that she is in trouble. Her credit card company is after her; there are bills to be paid, school loans, and she is almost at the limits of her not inconsiderable overdraft. At 25, she is beginning to think that compound interest is not all it’s cracked up to be. She has gone to banks and asked for loans, but they all say that her debt-to-income ratio is too high.

2. The Impact of Financial Literacy on Personal Finances

Understanding what financial and investment terms mean will help you make better financial decisions. A study compared the decisions of financially literate individuals who are more successful at managing money with good decision-making skills to individuals with lower levels of literacy. It is important to note that being financially literate means different things to different individuals. Often, financial decision-making is affected by more than just cognitive abilities. Factors like trust, mindset and preferences also play a major role. For instance, Orcy and Foster discovered a surprising danger in knowledge in their research. Individuals who score high on financial literacy tests are more likely than the less knowledgeable to take risks in their personal finances. As a result, knowledge has a complex and varied effect on money management. But at the end of the day, money management is the key to long-term financial security. The best way to avoid ignorance is to make considered decisions based on what you know and understand. Making uninformed decisions with money leads to negative financial outcomes.

Reading and understanding different types of financial documentation will ensure you stay informed on your finances. Understanding what financial and investment terms mean for your finances will help you make better decisions about things like 401(k) withdrawals, withdrawals from an Individual Retirement Account (IRA), and life or health insurance. There are many ways to measure financial literacy, including an assessment by a professional or a survey, like the National Financial Literacy Survey conducted annually by the Financial Industry Regulatory Authority among American adults. No matter your age, education or economic background, financial literacy is important in ensuring you are making the best decisions for your financial well-being.

3. The Role of Financial Literacy in Business Success

By recognizing and understanding the financial challenges of the future, financial literacy can help students and citizens in multiple dimensions: First, understanding or making proper financial decisions plays an important role in promoting national savings, improving the borrowing power of prospective individuals, and in curbing household debt. Second, financial education improves investment decisions, which occur at several points throughout the lifetime. These investment decisions are heavily centered in the stock and bond markets as well as real estate for wealth building for the individual and their family. During the lifetime, investment decisions such as education funds for their children or selecting various retirement and pension plans take an increased amount of due diligence from the individual. Third, from a macroeconomic standpoint, financial literacy plays a significant role in balancing the needs of individuals. Policymakers will be called upon to continuously improve overall citizen growth and their influence on economic policy perspectives should be a strategic priority put in place. Finally, improved financial literacy education can act as a risk prevention tool as demonstrated during the recent financial global crises, future debt crises, and lessons recently learned with how markets operate on the international stage.

Without financial literacy, people may also struggle to make financial decisions. Indeed, over the last 20 years, funds have been cut leading to people needing to make decisions on things like health insurance and retirement without proper knowledge of how these products work or how to make informed decisions. This lack of knowledge results in large borrowing (excessive credit card debt, student loans, or second mortgages on homes) and little retirement savings. Despite the many programs available, the teaching of personal finance still is not a required part of a school’s curriculum. However, this can be changed if state policy makers change the requirements of what is to be taught. Not only is financial literacy helpful for the problems mentioned but it also can empower students to make necessary decisions regarding career choices and different lifestyles. Therefore, financial literacy education is becoming highly important. As the future problems are addressed and minimized, economic policy decision makers must be committed to taking the necessary steps to increase and strengthen financial literacy among their citizens. Overall, without an increased understanding on the matter, they may risk significant amounts of their population, which has been shown to delay the path to growth and development.

Financial literacy is one of the most important skills that a person can develop in the modern world for a variety of reasons. First of all, financial literacy paves the way toward a stable future that is not characterized by a lack of debt or emergency funds. In addition, gaining a higher level of financial literacy can help individuals take part in investment decisions that can help to build wealth over time. These investment decisions revolve heavily on investments in stocks and bonds, of which research has frequently expressed that a lack of knowledge or familiarity with how the investing world works can lead to a decline in investment opportunities. Therefore, financial education can help work to empower people and provide them with the necessary understanding of the various markets. Moreover, financial education can help work to protect against and reduce future crises as well as help develop an understanding about how the financial markets operate. Furthermore, educating society in matters of finance can not only help make better financial decisions but also understand national and international economic policies that impact market performance, making them better overall citizens with jobs that can be made safer by this greater understanding.

4. The Relationship Between Financial Literacy and Economic Growth

That said, there are several channels by which financial literacy could influence the overall level of information intermediation in an economy. The most obvious channel is that if a large number of individuals are financially illiterate, they must rely more heavily on financial advisors to execute their transactions than they would otherwise. This channel might be even stronger if agents are systematically poor at recognizing that they need financial advice. If advisors are risk averse, they will accept these deposits via writing contracts against their wages. It has been suggested that the presence of these contracts may facilitate the monitoring of advice and therefore the outcome of the labor market screening model may differ from those in other sectors. Further, since loans were made for investment purposes, they generated a stream of resources that was directed toward the innovations with the highest expected discounted value. When these innovations are realized, clients who took out loans are then better able to pay the interest and contribute to the strengthening of the financial intermediation process, thereby contributing to overall economic development.

There is a wealth of research suggesting that financial literacy is a significant determinant of economic growth. While we have mapped the tenets of the subject, this article does not formally address the causes of how low levels of financial literacy or numeracy may subsequently result in lower economic growth. There are several reasons why policies to promote financial literacy could stimulate economic growth. Individuals may make mistakes in their decisions over many dimensions – work, savings, consumption, and investments – due to their low levels of financial or numeracy literacy. Such decisions may reduce their ultimate wealth and also reduce the overall degree of productive capital in the economy. A second channel may be through the decisions of how to finance education. A third possible channel is through the reduced financial depth.

5. Strategies for Promoting Financial Literacy Education

1. Offer financial education in schools at all levels. The President’s Advisory Council on Financial Literacy Goal Setting & Recommendation Committee has asked school districts around the country to teach financial education in kindergarten through the 12th grade by the year 2014. Seven states are considering a partial graduation test in financial education – Arizona, Maryland, Missouri, Illinois, New Jersey, North Carolina, and Utah. Evaluate young people’s independent financial recovery programs and focus national attention on existing success stories. Another network will be established at the national level to strengthen endeavors. The Financial and Economic Literacy Collaborative anticipates an anticipated collective impact. The findings and resolutions of the Independent Financial Recovery of Youth Act of 2019 have the potential to provide your efforts with unique and unforgettable momentum. Ensuring that the voices of young people who have or want assistance are heard.

Promoting financial literacy requires a variety of strategies. Some can start with children and remain with them throughout their schooling. Others can target people of all ages, including families. Children learn from watching their parents. To improve financial decision-making, we need to reach parents, not just students. Savings behavior is learned from education, not an advertising campaign. Parents play a crucial role in the financial literacy of their children. On average, youth score lower than adults on financial literacy assessments. According to Money Management International, fewer than 10 percent of children under age 12 receive financial education. Middle-aged individuals, the wealthiest group, are responsible for financial education efforts and the primary beneficiaries.