Why is financial literacy assuming greater relevance than before?

Because it influences both economic growth and individual financial stability, financial literacy is one of a country's most valuable assets. Know why financial literacy is so important in today’s times.

Financial literacy has risen to the top of people's priority lists, particularly in recent years. People are becoming more ambitious, exploring multiple sources of income and investment, and being more prudent with their money.

With digital disruption, there are numerous platforms and avenues for people to earn money while doing what they enjoy most from the comfort of their own homes. This has prompted people from all demographics to reconsider the meaning and importance of financial independence and to take steps to strengthen their financial position.

The government is working in collaboration with its various regulators to improve and expand financial literacy through courses, workshops, and other outreach programmes. This is evident in the range of financial services users in the country, both online and offline. India’s financial literacy has improved as insurance and banking have become more accessible. While India has come a long way in terms of financial literacy, most would agree that there is still a long way to go.

It is critical to improving one's familiarity with managing one's finances, which includes a solid understanding of various investment options/avenues, budgeting, retirement planning, and avoiding any financial burden. There is an urgent need to improve financial literacy at the micro-level of society. Introducing financial literacy into the educational system is critical because it establishes a foundation for an individual at a young age, which has a long-term positive impact on their financial health.

Financial literacy is one of a country's most valuable assets because it determines a country's economic growth as well as individual financial stability. In today’s world, financial literacy is critical due to the following reasons:

Planning and budgeting of finances

Financial literacy aids in proper planning and budgeting through accurate expense tracking and analysis. A proper budgeting exercise makes it easier to pay bills on time, build an emergency fund to cover unexpected expenses and save for large expenses. It also aids in keeping track of one's expenses and adhering to a budget.

Having a budget improves one's financial stability in the short and long term. A monthly budget can help you organise your finances and improve your saving habits. However, incurred expenses without a budget may result in unnecessary debt or a lack of savings.

To avoid being fooled

People tend to take “advice” from many people due to a lack of knowledge on the subject. It is possible that they will be misled in such a situation. As a result, improving financial literacy leads to personal development. People should ideally seek professional assistance, but they should also be financially literate, which helps them understand a financial advisor's explanation or recommendations.

To create wealth

Take a close look at personal finance, and you will realize that wealth is simply all of the assets that a person owns at any given time, especially during retirement. These assets could have been purchased with borrowed funds. All of these assets, however, can be debt-free with the help of financial literacy and financial planning.

Following retirement, this wealth becomes the corpus from which a significant and consistent source of income can be received to meet all of the increasing financial needs. Planning, budgeting, debt management, financial diversification, long-term savings, and investment are thus critical to accumulating wealth and achieving financial independence.

To secure one’s future

By encouraging people to set goals for themselves and their loved ones, financial literacy fosters a sense of self-identity. People who are financially literate understand the fundamentals of market operations, can analyse their "needs" and "wants," and develop saving and investing habits that provide them with the resources they require to manage their expenses, including dealing with emergencies.

To achieve financial independence

Understanding financial goals are critical in financial planning. Some important questions to consider include: why are you saving, what is your saving goal, will the savings one is currently making be sufficient to cover obvious future expenses, and how should one plan when the amount is unknown now, for example, child education, marriage, health expenses, retirement corpus, etc. In summary, one can divide their financial needs into three categories:

• Immediate requirements - Expenses that must be met right away.
• Unexpected non-budgeted expenses - House repairs, large medical bills, and so on.
• Post-retirement expenses - Retirement planning Financial literacy enables a person to achieve all three goals methodically.

Financial abilities can help to boost overall economic growth and raise living standards. The workforce in India, when combined with strong financial education, has the potential to propel the country to great heights. A financially savvy India would have a significant global impact, bringing it closer to the Rs. 5 trillion economy dream.