intereest in finance essay

intereest in finance essay

The Importance of Financial Literacy in Personal Finance

1. Introduction

Section title: 2. Financial literacy The importance of a person’s personal finance management ability in maintaining a financially independent life has increased in the 21st Century. An individual’s ability to maintain personal wealth will allow them to achieve definite financial goals and lifestyle choices with less difficulty as well as to respond to emergencies using their own personal resources, without taking on any unwanted debts. To achieve this, individuals would be able to evaluate their personal financial management skills and limitations. Financial literacy is a critical factor in personal finance management. Financial education is one method to improve financial literacy. In addition, the most basic of all financial planning activities such as money management, financial goal setting, budgeting, and financially related information processing is the core instructional component of this subject.

Financial literacy – a term that defines the fulfillment of personal finance management skills in order to maximize financial assets – is an important aspect of achieving financial goals in life. This term has now become a significant topic to discuss as it reveals an prevalence of ignorance amongst people about how to utilize their financial assets wisely. In response to a notable increase in over-indebtedness, gambling, and bankruptcy and due to the increasing complexity of financial products available for the public, studies focusing on financial literacy have become more prominent nowadays.

2. Understanding Basic Financial Concepts

Why is financial literacy important? Financial literacy is certainly necessary for various skill-based reasons. For example, families may fail to accumulate enough or build up too much debt because of financial literacy barriers. Past research has also shown that stock market participation and general saving decisions are positively correlated with financial knowledge. Financially savvy people may also improve their credit scores by taking out auto or other loans, which can lead to significant future financial gains. Furthermore, financially literate people are more likely to plan for retirement than people with lower financial knowledge. Financial literacy is also critical because it is a stepping stone to good financial choices at later stages. In a sample with the same range of risk preferences, we find that financial knowledge is a significant predictor of risky choice more than general numeracy skills or cognitive skills. It plays a role, especially in the least challenging conditions. Finally, financial literacy is critical because it can help build trust among investors overseeing almost 70% of households in the United States.

Numeracy is the ability to understand and use mathematics in a variety of contexts. This includes analyzing information and understanding basic concepts, but also being able to perform simple arithmetic. The financial literacy test was created to measure whether people understand, use, and engage with key financial concepts. Most of the questions in the test focus on fundamental concepts such as simple arithmetic, interest, inflation, and more. This is to measure the ability of people to understand simple concepts that could tell them how different financial products might work, how to protect themselves as consumers, and how to make responsible financial decisions. One of the major contributions of financial literacy research is that financial knowledge and skills are essential to build and maintain a healthy financial life.

3. Developing Good Financial Habits

Luckily, anyone can change and improve their financial situation not by relying on luck, but through good planning, sound decisions, and hard work. As Albert Einstein once said, “The most powerful force in the universe is Compound Interest,” and by harnessing this force, individuals can build their personal wealth over time. Additionally, the “miracle” of compound interest is that it is an economic necessity. Has the time come to consider changing the financial habits we have developed over the years? What habit should I start with? Where can I find the information to help me answer these questions? For those who wonder about these and want to take control over their economic situation, Acuedi would like to invite you to join this online initiative to help educate our communities on how to use finance as a tool to build a prosperous economic future.

In order to survive in the current day economy, it is vital for individuals to take control of their financial future through knowledge and understanding. To achieve this, they first need to develop good habits that are the foundation of an economically stable existence. As soon as possible, we need to start setting goals, create budgets, and begin saving to help build a “rainy day” fund. This money can be useful when unanticipated events occur that may require access to additional funds. We often say that “there is never a good time to start thinking about our future, the best time is now” and while this is true, changing habits that have been acquired throughout the years in most cases is not easy to do.

4. Investing and Building Wealth

Long-term saving through an employer-sponsored retirement account can also encourage growth. A 401(k) or similar account will compound and grow year by year, contributing to the investment horizon of the individual investor. One of the mistakes many can make is making financial decisions based on emotions. While life circumstances such as marriages, births of children, or proposed retirements will naturally encourage changes in savings and investment strategies, one should try not to overreact to news or market fluctuations. One of the primary reasons that investors underperform long-term investment averages is because they fail to resist the temptation to buy funds that have outperformed in recent years and sell funds that underperformed.

Once people have a financial foundation in place, they can turn their focus toward building wealth. Building wealth can help expand a net worth, making people more comfortable overall and better able to handle any unexpected circumstances that may arise. Ultimately, of course, most people would like to eliminate financial stress and retire as comfortably as possible. Wealth-building usually consists of investing money in ways that will not only maintain one’s principal but will also likely earn a return above inflation. Investing is essential in building wealth over the long term, as money saved will usually not grow enough to meet longer-term needs. While saving consistently is imperative, investing can only boost an individual’s long-term growth potential.

5. Conclusion

Recognizing the importance of the understanding of PPPs, the Pakistani government and the TEVTA have since made available courses on personal finance management at the vocational education level, particularly the National Vocational Qualification Framework in Pakistan. This study attempts to explore the perceptions of Community Colleges in Punjab, Pakistan, towards financial literacy, by surveying both full-time students and government employees attending evening classes. An overwhelming majority have a moderate or high level of understanding of PPPs and of the Delhi Foundation planned finance module. Overall, these finance courses have been able to instill the importance of the key issues required for personal financial management among the two groups. The main implications of the study for PPP enablers are that appropriate courses on personal finance can inculcate basic knowledge, responsibility, attitude and behavior, and a deep understanding of the bigger picture, thereby building a financially capable individual now and in the future.

As financial gurus put so much emphasis on financial literacy in personal finance, the study has contributed to the understanding of individual savings behaviour and has practical implications for savings institutions, governments, employers, and every Pakistani citizen. People ages 17-70 years across Punjab are saving more and largely accept the importance of education on personal finance. The current savings level is higher as the youth are not going for marriages and tracking their spending as well. All these imply that Pakistan’s young working population has the potential to drive the country towards sustainable growth. This can only lead to self-empowerment once these individuals are ‘educated’ in the ways of personal finance. The positive perceptions towards the finance course on personal finance and saving behaviour are good recommendations to the government to include financial education as part of the curriculum at school stages.