Research that was conducted by Bank of America revealed that most Americans don’t know how to manage their money. As a result, most of them usually spend more than what they earn, a factor that put them in debts. The research concluded that the main reason most Americans get in deep debt is because of financial illiteracy. They, therefore, recommended education as a way to curb financial illiteracy.
What is financial literacy?
Financial literacy is the ability of a person to make independent but smart financial decisions. It includes understanding how to use credit cards, how to make a smart investment, how to save as well how to spend your money wisely. Financial literacy impact directly on the daily decisions that an average family makes when trying to balance a budget, pay fees for their children as well as ensure that they have financial security at retirement.
Importance of financial literacy
1. Sound financial decisions
One of the main benefits of financial literacy is the ability to make good financial decisions. You will be able to make sound decisions when it comes to choosing what to invest in and when. Timing is very important when making the investment. If you have the good financial knowledge, you will always make good timings when investing your money, a factor that will enable you to create wealth.
2. Spend less save more
Most Americans usually spend more than what they earn, a factor that usually put them in debts. The main reason many people are usually in debt is because of financial illiteracy. If you don’t have the good financial knowledge, you will not only spend more than what you earn, but your will also make wrong choices and decisions when investing your money. Financial literacy will help you have good financial management skills meaning that you will be able to save more as well as invest your money wisely.
3. Sound investment
Saving money is not sufficient enough if you want to be financially secure. The best ways to create wealth and be financially secure is by investing your money wisely, and that can only be possible if you have good financial management skills. Financial literacy will help you identify an investment that will be profitable.
4. Financial security at retirement
Everybody want to be financially secure when they finally get to retire. Having good financial knowledge will help you save and invest wisely thus creating wealth that will sustain you when you financial get to retire.