literacy

Financial literacy – Why is it so important

Financial literacy is the ability to understand finance. Understanding finance refers to the skills and knowledge that allow you to make informed decisions on real estate, insurance, savings and taxes among many other financial subjects.

The problem

According to the Organisation for Economic Co-operation and Development (OECD), if you are bad in finance, you are not alone on this planet:

Canadians consider choosing right investments to be more stressful than going to the dentist.

Four out of ten American workers are not saving for retirement.

British consumers do not actively seek out financial information. The only information they receive is only acquired by chance and is not always reliable.

Sixty-seven percent of Australians think that they know the concept of compound interest, but when asked to solve a simple related problem only twenty-eight percent had a good level of understanding.

The origin of the problem comes from the school system that, until today, is failing to at least introduce our kids to the basics of finance we need for our everyday life. You have probably learnt a lot about credit cards, savings and loans from your personal experience. Imagine for a moment that you knew how to deal with your credit card payment before you went in trouble the first time you used it.

You need at least a degree in finance to consider yourself a financial expert but you don’t want to make a career in finance. You only need to manage your personal and day-to-day finances. You will find below some general tips that would help you manage your finances. Remember that finance is a vast world and you need to do your own research for every financial decision you are about to make.

Make use of the online tools

There are hundreds of online tools and apps online that can help you with various financial decisions like the loan calculators, life insurance calculators and others. Make a good use of these tools but always keep in mind that some of these tools are meant to have commercial motives, thus not always being on your side.

Every little bit counts

Start saving for your retirement! You are urged to cut from your spending and add it to your savings. Don’t say that your salary is not enough; just take it a buck at a time and you will notice that you can still manage your expenses while growing your monthly savings. A good tip that will help you save money would be to ask yourself prior to each purchase if you NEED this item or you simply WANT it. Try asking yourself this question for a period of time and you will discover that you are already saving money without thinking!

Use your credit card wisely

One thing most of the people do not understand is that a credit card doesn’t give you free money. Banks offer credit cards because they know that most of the people will improperly use it and will oblige credit card holders to pay interest. Credit cards are only made to help you purchase your everyday purchases like food and clothing. Do not buy things you can’t afford! Pay your bill on time and in full every month; don’t make the mistake of only paying the minimum payment each month it will increase the amount of interest.

Teach your kids

You don’t want your kids to fall into the same financial problems of the majority. Start teaching them the good use of finance from an early age. You will be sure that they will carry a life without financial trouble.

About the author:

James McDonnel is a passionate finance blogger who writes for SwiftMoney.com and loves writing on popular blogs like canadianpersonalfinance.com. SwiftMoney are payday loan lenders and can help you if you are looking for a short term loan. James is a full time blogger and economist and he writes occasionally on various finance blogs.

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