finance essay writer

finance essay writer

The Importance of Financial Literacy in Today’s Society

1. The Impact of Financial Literacy on Personal Finances

Thus, the education of financial literacy is one of necessity. By being financially literate, one is able to make educated financial decisions based on personal financial information. Being financially aware allows you to choose what you do with your money. Many people in today’s society have a poor financial literacy problem. A study conducted by the JumpStart Coalition for Personal Finance found that only 16.4% of U.S. high school students are able to answer basic questions about personal finance. As a result of this nationwide problem, personal bankruptcies are at an all-time high, while consumer debt is at rates never seen before in the country’s history. Many financial analysts attribute these problems to the lack of financial literacy instruction. Similarly, people need to know why the old rule of thumb regarding asset allocation and how much should be invested in stocks doesn’t always work. Financial literacy also plays a huge role in the ability to save and to avoid overwhelming credit card debt. With the counterfeiting of money, the largest financial crime in the world, crime prevention education should incorporate lessons in understanding how to manage money and personal credit. It is of utmost importance to educate the older population on how to be financially secure during retirement, especially as the landscape of the corporate environment changes.

A solid knowledge of personal finance is vital for making sound financial decisions in life and for success in life in general. Personal finance is a subject that is not taught in most schools, but which should have been a required subject for years. A majority of Americans have little, if any, savings. In fact, the U.S. Commerce Department recently reported that the overall personal savings rate has dipped into negative figures – something it has never done. The negative rates are a result of a growing number of people spending more than they earn. As one financial analyst said, “People need to start saving more.”

2. The Role of Financial Education in Promoting Financial Literacy

Today’s children and adolescents will become tomorrow’s consumers, workers, taxpayers, and investors. The prosperity and well-being of a nation depends on the knowledge and skills of its people. Unfortunately, many U.S. adolescents have not mastered basic principles of personal finance. Improving the financial literacy of our nation’s youth requires an understanding of the financial knowledge and skills they need and a clear picture of sound ways of imparting these competencies. Financial education programs can potentially provide these important skills. The National Endowment for Financial Education advocates a two-tiered approach to financial education: Formal and Informal. Those adolescents who are not likely to be well-served by formal education programs include the less talented in the management of procedural information and those with low literacy in mathematics. This would suggest that informal programs, such as after-school programs, community-based programs, and family-based programs may play an important role in teaching financial literacy.

The primary focus of financial education and of research in this area must be to provide people with the skills to make informed and well-reasoned choices that support their financial well-being. Adolescents need these types of skills in order to be prepared for their future financial roles. As an example, adolescents who are financially literate are likely to consider the future consequences or outcomes of their current behaviors and have a better sense of impulse control.

3. The Benefits of Financial Literacy for Individuals and Communities

Communities also benefit when people are financially healthy. Economies improve when people are more financially capable. The total cost of financial exclusion in Massachusetts was $54 million annually. Even a small increase in the state’s percentage of financially included residents could add 1-3 additional retail branches, create 2-4 new banks, provide $100-200 million in new loans and deposit products, add 50 new full-time equivalent jobs, and inject $4-9 million into the local economy. Communities can also better support their populations when a good proportion of residents are financially competent. For example, migrant communities in Canada who practice financial literacy programs, meet annually to perform cooperative work to support others in the group who need help, or have a financially supported initiative, support the upskilling of their members in community support roles, which also helps residents access better work conditions.

Many benefits exist for individuals and communities who have at least a basic level of financial literacy. One of the most important benefits of financial literacy is that it can provide a foundation for financial well-being. People who are financially healthy have the ability to effectively manage their finances to stay out of debt, save for emergencies, achieve financial goals, and support the economic goals of their families and communities. Financially healthy people often live healthier lives and have a greater sense of accomplishment.

4. Overcoming Barriers to Financial Literacy

The “network gap” centers on financial knowledge networks: universities, finance experts, relatives, and friends. Less familiar networks or networks with lower levels of liquidity may be less efficient, leading to information consumption problems. The gap in “connect” concerns consumer concerns, the content of financial education, and the lack of knowledge in math-related fields. A disgruntled demand for prerequisites to use specific financial advice may arise from a consumer. To overcome these barriers, the authors mention the need for individual interventions, financial education programs, diversity incentives, and even financial regulations. These are sensible policy suggestions. However, to be effective, the debate cannot stop there. Understanding what method or combination of methods is feasible and effective in improving financial knowledge still requires a constellation of factors such as implementation, incentive compatibility, perception, and cultural significance, as well as some informed judgment. To help policymakers understand, this article’s objective is to provide some practical and relevant answers. To do so, this article integrates numerous disciplines, practical examples, and recent research findings.

The four gaps and financial illiteracy: overcoming barriers. Despite financial illiteracy’s documented dangers, potential solutions often encounter barriers. In a clever article in this issue, the authors organize the problem in terms of four “gaps”: the “carat” gap, the “firewall” gap, the “network” gap, and the “connect” gap. The “carat” gap focuses on the fact that, in some cases, fragmentary information, sometimes labeled not-spot information, may lead consumers to erroneously conclude that they are knowledgeable. The “firewall” gap describes the separation between professional finance and personal finance, between finance experts and consumers, which hinders the topical matching necessary for consumer decisions. When a consumer mistakenly perceives that their financial literacy is intermediate or high, different types of advice can result in different investment choices being made.

5. Strategies for Improving Financial Literacy in Society

The second possible strategy to address financial illiteracy is to work with the business sector. Government programs should not be the main source of financial education, and the private sector should produce standalone products without relying on government incentives or direct financial support. Governments may provide tax incentives to lead the private sector in developing independent financial skills products. This can be done by providing tax relief to support investment in financial counseling services and providing tax relief for ordinary people who want to seek third-party financial advice services. This will encourage more employers to fund financial education, advice, and financial cost protection for their employees.

Financial literacy is probably one of the most important life skills in today’s society. Not only does it almost guarantee a path to financial freedom, having good financial literacy skills also prepares students to meet the financial demands of life head-on. At this point in time, serious concern exists regarding the financial illiteracy of the youth. Schooling certainly seems important in addressing the problem, as research suggests that some form of financial instruction has a positive effect on a student’s financial behavior. Given the fundamental importance of the problem, governments have established several strategies in order to prevent financial illiteracy both in their own and in private sectors.