Financial literacy, the key to better decisions
September 8 marks the International Literacy Day, this year dedicated to “Literacy and skills development”, which includes financial literacy, essential for a society responsible, aware not only of their rights and responsibilities
Established by UNESCO to celebrate not only advances in literacy around the world, but also to reflect on the challenges posed by it, International Literacy Day is marked annually, involving governments, civil society and private sectors, NGOs and other stakeholders in a joint effort to promote literacy as an integral part of lifelong learning.
Financial literacy, what is it?
It is about education and understanding of the various issues related to money, its management and conscious consumption, banking system, savings and investment, among others, to facilitate decision making regarding personal finances and development of skills related to family planning, loans, retirement planning, fraud prevention, etc.
Low levels of financial literacy are usually associated with bad or questionable choices with regard to personal finances, with negative impact on the quality of life of individuals.
The Role of Parents
Financial education should start at home early. Realizing the value of money is something a 4-year-old already has. To explain to them that it is not an unlimited resource, that is achieved with work, are steps by which one can start, paying, for example, some tasks like separating the trash, helping to wash the car, etc. It is also important to explain to them the importance of spending responsibly and above all saving for something they want, such as a game.
Another important concept to deal with the younger ones is the loan and the need to pay it on time – the first times they lend their children money to buy the game early, for example, establish a realistic deadline for payment and fines in case of failure, which may be 5/10 cents daily / weekly.
There are five essential components of financial literacy, according to Forbes :
- Budget Bases – Keeping and staying true to a budget (personal, family, etc.) is one of the most important skills, a task that has been greatly facilitated these days thanks to a multitude of websites and apps developed specifically for this purpose.
- Notion of interest and its impact – Interest can have a significant impact on your finances, so the perception of its operation is something that must be acquired early. In addition to contributing – or not – to help increase your savings, it can be helpful at the time of borrowing.
- Savings habits – Something to acquire from an early age to be able to maintain a stable financial situation throughout the life, directed, for example, to medium-term objectives initially, like a trip, a car, entrance to a house, and later – but not much – for retirement, even if it is still far away.
- Understanding debit and credit and the need for responsible management of both.
- Attention to security and identity theft – a key issue these days, where personal data, including financial data, are very vulnerable and subject to fraud. Preventing such situations by protecting passwords and limiting shared information online is critical to account protection.