THE NEED TO BE FINANCIALLY LITERATE
What does financial literacy mean and why do we have to be financially literate?
The Money Advice Service (MAS) defines financial literacy as “someone who keeps track of their money, plans ahead and is able to make informed decisions about their finances, understanding the risks and benefits of particular options”. From the above, it is clear that without financial literacy, the decisions and actions that we take about our money lack solid foundation for success.
When you are financially literate, you know how to distribute your income towards several financial goals, can save for difficult times and make debt repayments. It means been equipped with the relevant knowledge and skills to make sound financial decisions.
There are certain elements required for someone to be financially literate. Firstly, you must be able to keep track of your money. How do you do that? You must know how much you earn, (net and gross) all the sources of your income (rental income, pensions, benefits etc). To keep track of your income is to know the sources of your income and your expenditure.
Secondly, keeping track includes knowing how you spend your money which in financial terms is called expenditure. It is important to have a budget of how you intend to spend your money. Our attitudes and behaviour influence our spending. Without a budget, you will buy any and everything.
Thirdly, we must plan ahead which includes the ability to save and invest. You cannot spend all that you earn as you may not have the ability to always earn money due to ill health, unemployment etc. When life happens, we are sometimes not ready for the fall out financially. You should be able to know what saving and investment products to buy that will suit your circumstances. Being financially literate means having the ability to make decisions about the risks and benefits of your options. Ability to know what loans and credit cards to apply for, ability to compare Annual Percentage Rates (APR) which is the interest that you pay when you take out a loan. Ability to shop around and borrow money at the cheapest rate. The higher your credit score, the lower the interest that you will pay.
Finally, to be financially literate means, being able to make informed decisions by having the relevant information and skills required. You can subscribe to news -letters from trusted sources like Martin Lewis’ MoneySavingExpert or Experian. You can also talk to a Financial expert, use social media. Look out for free tools from your bank by checking either their website or apps.
It is very important to know how to protect your money. Always check your bank account regularly for mistakes and suspicious activities and identity fraud. Make sure that you are on top of your bank accounts and ask questions when you are not sure of certain transactions.
Every Adult needs financial literacy. Go out there and get as much information you get which will help you to make solid financial decisions. In this current dispensation, we cannot do without financial literacy. We need to be able to make informed choices to prevent financial disasters.
ROBERTA O AVWEROSUO-ADEDA – MIMA (Cert)
IMA ACCREDITED MONEY ADVISER