Why Is Financial Education Important?

Financial Education Importants
Post in Accounts

Financial education is the cornerstone of a productive life. It encapsulates skills and knowledge which help a person become financially sound.

Money is a huge resource which needs to be managed skilfully. This requires making innovative decisions and looking at the broader picture.

The impeccable way of managing finance is covered under financial education. The method of making informed decisions about financial resources is important in all aspects of life.

In this article, the various aspects of financial education would be described along with the importance. There is also a section which describes the recommended books for developing financial expertise.

Definition of financial literacy

Financial Literacy covers all the important areas of saving, investment, interest, expenditure and budgeting.

It is the knowledge about all the financial aspects of life and the art of making wise financial decisions. The terms financial education and financial literacy are used interchangeably.

Four pillars of financial literacy/education

There are pillars of financial education which determine the status quo of a person and help him/her alter the way of living. This is the fundamental rule of leading a fulfilled life with innovative choices.

  • Debt

It is the money spent that does not belong to that person. Debt is of two types mainly good debt and bad debt.

Good debt is the money borrowed which can be repaid to buy necessary things. On the other hand, bad debt refers to the borrowed money which cannot be repaid.

  • Saving

It is an essential part of financial wellness which determines the quality of life. Putting savings in an interest-yielding bank account would allow it to grow over time.

  • Budgeting

It is the impeccable skill of managing money to curtail the unnecessary expenses and end up saving more every month.

The rule of the thumb is that income must be greater than expenditure in order to reap monetary benefits.

  • Investing

It is the process of investing more money so that it reaps good results. Putting money into a property fund, retirement fund or unit trust could be helpful. In due course of time, a person would have more money than he/she invested.

Financial Education is an essential part of the syllabus

About 62% of the school going children say that they are being taught the fundamentals of financial education.

Brushing up certain features and concepts related to finance would provide confidence in dealing with money-related issues.

The basics of managing finance are being instilled in children at a very young age. They would become finically sound and economical when they are faced with money-issues.

Moreover, participating in workshops and seminars would provide hands-on-experience to students.

Several other competitions and events would inculcate the sense of effective money management.

Financial programmes for Educational Institutions

There is a rapid growth in the number of financial programmes all across educational institutions in the world.

Most of them are aimed at school children in order to inculcate good money values in them.

Some of these programmes have had a positive impact on the students and developed their habits and behaviour. Countries like the US and UK are developing national financial strategies.

There are several courses aimed to hone the money skills of students. For example, the British Columbian Securities Online Commission financial life skills course blends fictional characters and their money-saving decisions.

In the US, teacher training is a crucial element of the NEFE (National Endowment of Financial Education) school program.

Importance of financial education

Financial education plays a major role in our lives and its importance is undeniable.

  • Important to manage personal and professional finances

Financial Education plays a crucial role in our lives. It is mandatory to manage our personal and professional finances to become independent.

  • Avoids money-related problems

The impeccable process of managing money keeps financial problems at bay. It would do wonders in helping people with their retirement plans and insurance policies.

  • Encourages better economic growth

Moreover, financial literacy fosters economic growth and better investment plans. It helps prevents debts and repay all loans to have a secure and well-organized life.

  • Re-plan the expenditure

Financial literacy helps a person re-organize his/her expenditures and encourage thinking about what he/she can literally afford.

  • Streamline the budget

The unnecessary items can be trimmed from the budget leaving a person with the essential things needed for him/her.

  • Overcome money-related issues

In addition to this, using credit wisely helps overcome all money-related issues. Sometimes, taking help from a financial counsellor goes a long way in making important financial decisions.

  • Help make better plans

A good financial decision would help make better future plans. It helps understand the choices of a person. 

  • Deal with a dynamic ecosystem

The world around is subject to change with people being abreast with the latest technological advancements and financial technology. In this scenario, it is often confusing for a person to deal with conflicting views.

Therefore, a good financial choice would help to deal with the changing society. A person would have sound knowledge about the ways to invest.

Financial Education in the UK

In the UK schools, the subject of financial education was made mandatory from 2014. Surprisingly, in the UK many young adults do not know about an overdraft. A few of them do not understand the meaning of being overdrawn in a credit or bank statement.

Some of the candidates in the group did not know whether to opt for a low APR (Annual Percentage Rate) or more while taking out a credit card loan.

Research shows that taking loans can turn out to be a disastrous activity as the payday loan can increase significantly.

In this country, bankruptcy is commonplace. Everywhere people hailing from a normal household to rich income families all are bankrupt. It has become a more socially acceptable norm.

Managing finances is a core skill and students would have to learn it to adapt in this ever-changing society.

A maximum number of people had voted for the subject to be introduced in schools. The motive was to educate young children about the importance of making good financial decisions in life.

Financial literacy learning tools help students learn about the basics. It hones the students’ decision-making skills making them adept at money-management.

Primary school children are being taught the ways to become financially independent and make sound money decisions. They are being made to use the pound and pence symbols accurately.

In addition to this, the students are taught to find different combinations of coins which equal the same amount of money.

They are being made to learn to solve simple mathematical problems in a practical way. The concept of giving change is also being introduced to them.

Interestingly, secondary school students would learn about budgeting, income expenditure and managing risk.

They would also learn about public money and other concepts like simple interest calculations and insurance.

Similarly, online money management courses can do wonders in solving money issues. These can be of great help to make children understand the importance of money.

The Money Advice Service and The Money Charity are good places to brush up the money skills. 

Five Personal Finance Classes people must enrol in

There are personal finance classes available online which require a free registration. These classes can be joined by anyone and a person does not have to pay a penny to attend them.

If a person has not received any formal education in finance then this is the best platform to explore and develop his/her money management skills.

  • Accounting in One Hour! A brief introduction, Skillshare

In this class, the basics of accounting are taught in an hour. The process of forming accounting equations along with the balance sheets can be learnt easily. Moreover, people are taught to create a simple income statement.

With the fundamentals of accounting being understood, it would be extremely simple to understand the money-related issues in life and act accordingly.

  • Introduction to Life Insurance and Retirement Savings, Alison

This class teaches the importance of retirement savings and life insurance. By enrolling in this class, a person learns the ABC of savings and insurance which is applicable in the US.

It could help people understand the bigger picture and easily achieve financial freedom. Moreover, it is an ideal class for anyone to plan his/her personal finances.

  • The Four Core of Personal Finance, Udemy

The four tenets of personal finance are talked about in this class. Many people have signed up for this session to understand the ways to get finances under control and become self-sufficient.

A person also becomes wise enough to understand the pros and cons of different personal finance paths.

  • Personal and Family Financial Planning, Coursera

This class is organized by the members of the University of Florida. In this session, a person learns about the critical financial management topics. These topics are necessary to develop prudent money habits for life.

The candidates must note that the class is for free, if students wish to get access to graded material they have to pay a small fee.

  • Financial Literacy, Macquarie University

In this class, people learn the ways to set achievable goals through an established working savings plan.

This session would develop the habit of making smart decisions which would protect the finances for the future. It would also polish the existing knowledge about personal finance. 

Useful books to achieve financial literacy

There are many books on personal finance which provide an insight to people and sharpened their money skills.

  • Rich Dad Poor Dad

This is a wonderful book which talks about the basic rules ad principles to achieve financial freedom. It is noted for the easy-to-use tips to make smart financial choices.

Moreover, it highlights the fact that money without financial intelligence is no good and vanishes out of the pocket.

  • The Intelligent Investor

This book by Benjamin Graham highlights the concept of value investing. It happens to be a trick in which under-valued socks are selected.

This book is of great use to the businessmen in making good decisions. The investors also read it to protect themselves from the losses.

  • The Richest man in Babylon

The ideals talked about in the book are still valid today. It discusses the success secrets of personal wealth.

Interestingly, the book says that a person must keep ten percent of his earnings for himself/herself and spend it as per own sweet will.

It is a wonderful habit of investing the money a person saves.  Money advice must be taken from the experts of their field.

  • Stop Acting Rich

This book highlights the importance of accumulating and spending wealth. People must stop themselves from acting rich and remove this facade. Instead they must live the life of a rich and successful person.

  • Think and Grow Rich

In this book, the author has suggested ways for a person to empower himself/herself. One needs to be a smart thinker and be concerned about his/her wellbeing in order to be financially successful. Moreover, a person must know his/her net worth and work towards self-reformation.

These books are a brilliant resource to chisel the financial skills and become adept at money issues. They give a glimpse into the intricacies of the world of money. There are easy tricks which can be followed by anyone to become financially sound.

To sum it up, the concept of financial education would benefit the individuals in the long run. It would help them manage monetary resources and live a life of dignity. It would also familiarize students to the field of money and make them better citizens of the country. Financial education must be a part and parcel of the school’s curriculum.

Author Bio

Heather Colee has a prolific knowledge of financial topics. Her understanding of concepts is excellent. Moreover, Colee also has read many books on Finance which provide her with an exceptional clarity of ideas. Her elaborate writing pieces have been valued and critically appreciated by many people.  Her coherent and articulate language along with the informative content has been admired widely.