Financial literacy refers to the ability to understand and use various financial skills, including personal financial management, budgeting and investing. It involves having the knowledge and skills to make informed and effective decisions about money. A financially literate individual is equipped to manage their personal finances, make wise investment choices, understand the implications of financial decisions and navigate the complex world of financial products and services.
Key processes of financial literacy
- Budgeting: Creating and managing a budget helps individuals allocate their income wisely, track expenses, and ensure that they are living within their means.
- Saving: Understanding the importance of saving money and knowing how to set and achieve savings goals is a fundamental aspect of financial literacy.
- Investing: Knowledge of different investment options, such as stocks, bonds, exchange-traded funds (ETF's) and real estate is crucial for building wealth over the long term.
- Debt Management: Being aware of the impact of debt on one's financial well-being and having strategies to manage and reduce debt is an essential part of financial literacy.
- Understanding Financial Products: Being able to navigate and understand various financial products, such as credit cards, loans, insurance policies and retirement accounts is essential for making informed decisions.
- Financial Planning: Developing a comprehensive financial plan involves setting short-term and long-term financial goals and creating a roadmap to achieve them.
Promoting financial literacy is seen as a means to empower individuals to make informed financial decisions, which can lead to greater financial stability and overall well-being.
With the advent of GenAI, I expect that interactive educational apps at high school student level as well as personal financial assistant apps will be provided by financial institutions to promote financial literacy in a digital world.