by Denzel Sibanda
Financial Literacy helps one to use and understand various financial skills. This is important because it helps build up decision making which is a life skill we need to hone on with our day-to-day life.
It is important for people not just in a business setup but even young children to gain a grasp on how to handle money and understand some of the skills needed to manage money. Within a few households, these principles are not valued and overlooked. The following are reasons why financial literacy is important.
Financial Management
Investor Trust is guaranteed if the company has stable finances because that will guarantee they are not making a loss through investing in that business.
This deals with how one handles money. This is crucial because if we don’t know how to allocate our finances. This could keep a business in bad debt (a debt that cannot be recovered )and that could lead to a business dissolving. By taking time out weekly to monthly just to figure out where the money is going to create a difference because in a lot of cases we spend money on things that we don’t need.
Financial Planning
Financial Planning helps. Some of the benefits include:
- Adequate funds being located which also creates a balance between the inflow and outflow of funds.
- Investors are more likely to invest in a business that implements financial planning because that shows stability and transparency in all activities about the finances.
- Expenses Reduced
Through calculating monthly incomes and expenses.
4. Through becoming aware financially you will have more control over what is going on and avoid making the same mistakes.
5. Retirement Planning
Retirement planning involves setting goals for your retirement income, then creating a strategy and taking concrete steps to achieve them.
6. When you have a concrete idea of where you want to be it is easy to create the micro-steps that will build up towards the bigger picture.
7. Good and Bad Debt
To begin with, debt is a sum of money that is owed or due. Believe it or not, there are two types of debt.
a) Good Debt helps build wealth, for example, investing in yourself by borrowing for more education, in the long run, this is beneficial because, in the long run, you can pay off the debt through the success earned.
b) Bad debt decreases in value the minute after you buy it. A good example would be constantly borrowing money from various sources who want their money with a certain percentage added on as well if the money isn’t paid back then there will be collateral.
Side Effects of Financially Illiterate
People who are not financially literate don’t know how to assess financial risks for example with marketing a new product that doesn’t have a stable demand could create a loss due to a low return in investment.
Another side effect is making misinformed choices that will yield poor results.
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