Importance Of Financial Literacy

Financial Literacy
Meaning
Financial literacy is the ability to understand how money works in the world: how someone manages to earn or make it, how that person manages it, how he/she invests it (turn it into more) and how that person donates it to help others. More specifically, it refers to the set of skills and knowledge that allows an individual to make informed and effective decisions with all of their financial resources.
Financial Knowledge
Financial knowledge component measures understanding of interest calculations, relationship between inflation and return, inflation and prices, risk and return, and the role of diversification in risk reduction.

Importance
1. Well-functioning financial markets depend on participants making informed

Financial sector reforms transfer the responsibility of financial decision making to individuals.
3. While consumer protection laws do depart from the caveat emptor (“buyer beware”) maxim of general law, even these pro-consumer laws depend on alert and well informed consumer

Merits of Financial Literacy to Individuals
• Decide how they will spend their money and meet their financial obligations
• make sense of the financial marketplace and buy the products and services best suited to their needs
• manage their personal finances and plan ahead for life events, such as home ownership or retirement
• ask and understand how they can benefit from local, provincial and national government programs and systems
• assess the financial information and advice they receive from relatives and friends, professionals or the media, and
• maximize the use of the resources they have access to, including workplace benefits, private and public pensions, tax credits, public benefits, investments, home equity, and access to

"The influence of the contextual variables suggests the focus of any strategy for improving the financial well-being of youngsters in India would have to be broader than just the individual," it said.

The study also explored the relationships between the various dimensions of financial literacy.
"While the significant positive relationship between financial knowledge and financial behaviour is, perhaps, to be expected, the significant negative relationship between financial attitude and financial behaviour is surprising.
"A plausible explanation for the latter result is likely to lie in the concept of locus of control.
"Despite having sensible attitude towards managing their finances, youngsters tend to behave in a profligate manner which gives rise to the observed negative association between attitude and behaviour," it said.

Ignorance is not bliss
• Only about 19 per cent of the respondents understood the impact of inflation on the rate of return
• About 24 per cent of the respondents exhibited high financial knowledge
• About 87 per cent of the respondents reported they had attempted to carefully evaluate financial