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Financial literacy is a crucial part of every individual, as it enhances their relationship with money. It is nothing but an awareness or knowledge of money management, budgeting, saving, investing, and more. Being financially literate helps individuals develop a good relationship with financial matters.
Being financially illiterate can lead to various problems that might end up in huge unmanaged debts, falling for financial scams and threats, being trapped in a never-ending cycle of interest and loans, and many more. This illiteracy not only affects grown-ups but also has a major influence on students and kids.
A 2019 study by the National Centre for Financial Education reports that only 27% of Indian adults have basic financial knowledge. This value is considered significantly low by most experts.
So, understanding the importance of assets vs liabilities, managing credit cards and other expenses, creating budgeting strategies and following them, and maintaining financial goals are not just grown-ups’ things, as financial literacy is important for students, influencing their short-term and long-term goals.
In this blog, we will have a detailed discussion on why financial literacy is crucial for students and related topics. So, let us get straight into the details.
As students shift from dependence on their parents to adulthood, where they need to manage their lives alone, they might have to face several challenges. Among these challenges, the most crucial will be the financial challenges.
As students step into adulthood, finances change from managing mere pocket money to managing tuition fees and credit card bills and setting long-term financial goals like buying a car, buying a home, or being financially independent.
So financial literacy plays a crucial role for students. Here are some important factors that underline why schools should teach financial literacy.
Money management is one of the cornerstones of financial literacy. Improving financial knowledge will help students, especially college students, gain better insights into habits like budgeting, tracking expenses, and creating emergency funds.
By incorporating these practices, students will gain better control over their income sources, expenses, and cash flow. Not only do these money management habits help avoid financial scams and pitfalls, but they also form the groundwork for wealth accumulation and a prosperity mindset early in life.
Students often get introduced to bank accounts, online banking and mobile apps, credit cards, and more when they start living independently. However, if they do not have proper financial knowledge, the chances of them getting trapped with unnecessary borrowing, poorly managed high-interest student loans, auto loans, and more are high.
But proper financial knowledge and education will help one have a better understanding of these matters, aiding in the healthy management of credit scores and credit reports, good debt management, and avoiding poorly managed high-interest auto loans or mortgages.
When it comes to students, financial planning is not only about retirement planning but also includes paying for college, utilising work-study programmes to support their education, managing scholarships and grants, decision-making on higher education, understanding how student loans work, and more.
So, strong financial knowledge will help students improve their financial planning by understanding compound interest and exploring various investment opportunities.
Moreover, some popular names like Lesley-Anne Scorgie and others showcase the importance of financial knowledge. Lesley, a Canadian author, started her first savings bond at 10 and her first mutual fund at 14. Her life showcases how acquiring financial literacy early in life helps shape life decisions, leading to improved living standards.
Therefore, financial literacy is important for students before exploring these opportunities, because, through proper education, they can have a broader understanding of the terms and conditions, rules, and mistakes to look for in these investments.
Similarly, another crucial aspect of financial literacy is mitigating financial scams and protecting oneself from risks. Money is important for all individuals. Today, people face various threats of financial scams, data theft, and cybersecurity threats.
Although individuals, irrespective of their age, can be prey to these scams, there’s a high chance that students fall into these pitfalls more easily. However, with proper awareness, they can stay attentive to these fraudulent schemes, unsafe online banking practices, or misleading claims about financial products.
Furthermore, although modern investment options like mutual funds, stock exchange participation, and Forex trading have the potential to offer higher profits compared to traditional investments like FDs and RDs, they also carry higher potential risks.
So, this is another major factor enhancing the importance of financial literacy for students.
At the core, the major aim of financial literacy in students is to improve their financial independence and build financial confidence. By improving financial knowledge, students can make informed decisions on loans, insurance, and financial products, which helps them avoid unnecessary debts and overspending.
Moreover, it will help them move toward financial security and financial freedom, which not only aids them in living independently but also encourages them to grow into informed adults and successful individuals in finance.
With proper financial knowledge, students can easily learn budgeting, saving, and investing. So, they can properly allocate their money into needs, wants, savings, and more.
With this understanding of how money allocation works, students can divide their resources accordingly and create a strong foundation for building financial security. So, they can not only achieve short-term goals like studies and day-to-day expenses but also work towards long-term goals like higher education, purchasing a car or a home, and more.
Life always remains unpredictable. Unexpected financial crises caused by sudden vehicle repair, job loss, medical needs, and more can make life difficult. However, financial literacy makes people aware of the need for emergency funds.
Understanding the importance of emergency funds will help individuals set aside a portion of their income into emergency funds. By starting to build this fund early, students can develop a significant emergency fund in the future that offers financial stability during hard times.
How can students become financially independent? There are certain key skills that students should learn to improve their financial knowledge and attain financial independence. Some of them are as follows:
Even though learning personal finance gives confidence to students, some fall into various pitfalls and mistakes. Some of them are:
Overspending on wants such as entertainment, food, shopping, travel, and hobbies, more than on needs, can affect budgeting and expenses.
Relying greatly on credit cards and using them for non-essential expenses can lead to high interest and continuing debts.
Delaying or ignoring repayments on student loans or other borrowed funds can lead to long-term financial pressure and high interest.
Ignoring savings and not contributing to emergency funds and long-term investments can lead to vulnerable situations at times of unexpected requirements.
With simple yet consistent learning and effort, students can improve financial literacy. Some of these methods include:
The world around us is moving at a fast pace. With lifestyle changes and advancements, proper financial planning is essential to maintain the standard of living. However, proper financial literacy is important in planning one’s life ahead.
From budgeting and financial planning to understanding credit, loans, savings, investing, and more, financial skills are not just useful but crucial in building financial confidence and independence.
So, with this article, we hope that most of you will be clear about why financial literacy is important for students. Remember, getting financial education early helps students make informed decisions, protects them from fraud and scams, and builds a future with financial freedom and confidence.
Uma Nair is a professional content writer with over 3 years of experience and a strong foundation in crafting engaging and informative content across diverse domains. Over the years, she has dealt with various niches, and her growing interest in finance has led her to explore the world of financial writing. As an English Language and Literature postgraduate, her educational background supports her ability to convey complex topics in easy and accessible content. In her free time, she stays updated on industry trends to continually enhance the value of her content.
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Ibnujala is a seasoned financial expert of Indian and Middle Eastern markets with an experience of over 15 years. His deep interest in neuroscience fuels his research in seamlessly blending finance and science. With a bachelor’s degree in law from India and an MBA from the UK, his diverse academic background makes him an expert in financial management and mentorship. In addition to being a seasoned investor and serial entrepreneur, he currently serves as the CEO of Finquo Versity.
Disclaimer: The information provided in this blog is for educational and informational purposes only and should not be considered as financial or investment advice. Stock market investments are subject to market risks, and past performance is not indicative of future results. Readers are encouraged to do their own research and consult with a licensed financial advisor before making any investment decisions. The author and publisher are not liable for any financial losses or damages incurred from following the information provided in this blog.
Uma Nair
