Financial literacy might sound like jargon. But, believe me, it’s about to get simple. Today many organizations run the Financial Literacy Program, especially in India, as a part of the CSR initiative.
It is the equivalent of learning how to manage all forms of money in your possession (say currency notes, gold, etc) to minimize your risk or loss and maximize your gains arising out of it.
A person should be well informed and aware of the options at their disposal before making any major financial decision. After all, you cannot afford to take a loan without knowing if the low-interest rate provided by the bank is benefiting you or the lender. Financial literacy is important even for people with non-finance background. Let’s discuss how.
Importance of Financial Literacy
If you simply remember the formula for compound interest but don’t understand its importance in investment. Then, that’s not very helpful, is it?
Let me give you a simple example
You start investing, by the age of 30, an amount of Rs.1000 annually until the age of 60. The interest rate is 12%. Your partner does the same but he starts 5 years early ie) he starts investing from his age of 25.
Your partner obviously would have earned more than you at the end of the period, thanks to his/her financial literacy or a financial literacy program he would have attended.
But to what extent?
His corpus at age 60 would be roughly around Rs.64 Lakh whereas yours would be somewhere close to Rs.35 Lakh. Welcome to the real world. And yeah, you missed out on landing some 30 lakh rupees by not starting early.
Constructing a simple budget for your weekly or monthly expenses may seem like an easy task to do. But, most people don’t make the right moves there as well. So, that’s also an indication to conduct financial literacy program.
Budgeting, along with managing one’s debt and borrowings and knowing about the various insurances and policies provided by the companies fall under the purview of financial literacy.
Calculating the tax rates and understanding the reasoning behind them is another vital aspect. Where financial knowledge can come in handy in our day-to-day lives. GST has a lot of importance in India, the small businesses should have some knowledge on how to fill their GST.
Ways to Adopt Financial Literacy
The spending habits of consumers might be hard to change. But, identifying vital pain points in one’s regular expenses can go a long way in creating awareness to the consumer. Thereby driving home the importance of financial literacy.
The financial literacy program can be designed in several ways. Both private organizations and governments can decide upon which method to adopt to reach the target individual.
1. Training Programs
Low-income families are deprived of financial literacy. Exclusive, in-depth classroom training and programs can be provided for them to get them rid of this deprivation. It should be one of the trainings required by the corporates as well. Because many people start their first jobs and are unaware of how to handle their finances.
2. Awareness Activities
Organizations play a significant role in creating awareness for a cause. Awareness creation activities and events can be conducted by the responsible organizations to add more flavor to this topic thereby striking the bull’s eye.
3. Through Education
Adding financial literacy into the curriculum of students can be another way of illuminating young minds. Providing access to various online courses and offline articles tends to be a useful technique as references and citations come in handy.
4. Track the Implementation
Measuring the success of the financial literacy program in terms of its reach and effectiveness can be a painful task but an essential task. Especially if the target audience is high in number. Tracking the implementation of financial literacy will help to know which audience to reach and how.
Surveys, interviews and tracking online behavior are a few ways of checking the impact of the implementation of the program.
The learners derive ample gains out of such financial literacy program. They will always think twice before taking any monetary decision that might influence their lives. They get relief from their financial stresses and lead a comfortable life without limiting much of their purchasing power.
It would be apt to conclude by quoting, “An investment in knowledge always pays the best interest” (no pun intended :P)
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