We all have different income levels, lifestyles and consumption habits. Still, it is important for all of us to manage our money and assets and handle our budget. The ability to balance our expenditures with our income, cultivate a habit of saving and making the right investment decisions requires a level of awareness and understanding that must be acquired very early in our lives as part of our primary education.
It would not be far-fetched to assert that this individual skill is an important achievement on its own that has the potential to improve our families and our society at large. What determines our capacity for making smarter decisions or mistakes when it comes to our savings and investments is our financial literacy. The concept of financial literacy has been subject to numerous studies and training programs across the globe. Let’s dive deeper for a closer look.
What is Financial Literacy?
Financial literacy can be described as the know-how required to manage one's financial resources in a sustainable manner and to ensure financial well-being. Positive behavior models that allow us to manage our budgets correctly and make informed decisions are also an integral part of financial literacy.
Financial literacy is achieved through financial education, through which we can gain a greater understanding of our budget, make informed choices about our expenditure and savings, and learn to tell apart risks from opportunities. Maybe most importantly, we can more easily discern the dynamic cycle of the economy from its effects on our daily lives, and gain the ability to access various resources that will teach us about the increasingly diverse financial products and investment instruments. By learning to access, comprehend and analyze information, we will be able to leverage our financial literacy in a more sustainable manner.
Why Is Financial Literacy Important?
Financial literacy is the combination of our financial understanding and our attitudes and behaviors. Using financial literacy to manage our income and assets is just as important as literacy is in our daily lives. From this perspective, it can even be argued that financial literacy is a basic life skill. It enables us to utilize the advantages of the financial system and protect ourselves from unexpected disruptions in every relevant aspect of our lives from managing a small student's budget to taking important decisions that affect the future of our families. Financial literacy of individuals also has the potential to transform the society as a whole.
The Advantages of Financial Literacy
- Financial literacy is the combination of our financial understanding and our attitudes and behaviors. Using financial literacy to manage our income and assets is just as important as literacy is in our daily lives. From this perspective, it can even be argued that financial literacy is a basic life skill. It enables us to utilize the advantages of the financial system and protect ourselves from unexpected disruptions in every relevant aspect of our lives from managing a small student's budget to taking important decisions that affect the future of our families. Financial literacy of individuals also has the potential to transform the society as a whole.
- We all have to make financial decisions and choices, regardless of our income. Saving money to buy a shoe that we want or buying it with credit is an example of a financial choice. Being financially literate allows us to maintain our income-expense balance by taking better decisions in matters that affect our lifestyle in the short and long term.
- Knowing how to manage our budget makes us more resilient against economic crises.
- Financial literacy is accompanied by correct financial behavior. Paying the bills on time, making sure our budget matches our income, saving for an emergency are all examples of correct financial behavior that are based on financial literacy.
- Being financially literate enables us to learn about the increasingly diverse financial products and investment instruments, correctly evaluate the information, and analyze our risk and reward balance.
- Financial literacy helps us accurately gauge our solvency and take more realistic borrowing decisions.
- Financial literacy also cultivates a discipline of saving.
Financial Literacy Core Concepts
Income: Money earned as wage, revenue, rent or another form that an individual, family or business receives from certain sources at certain times.
Expense: Money spent by an individual, family or business on a certain product, service or future asset.
Budget: Data collected and monitored to balance income, expenses and regular payments.
Budget Planning: The act of dividing money management into weekly, monthly and yearly periods to plan income and expenses in an informed manner.
Savings: The amount of money left after subtracting personal consumption expenditures from disposable personal income.
Needs: Conditions and material necessary for human life that cause distress when they are absent. While human needs are limitless in principle, in general, these can be categorized as basic needs and luxuries.
Management of Needs: The planning skill necessary to distinguish basic needs from luxuries, categorize needs and meet basic needs in a correct and timely manner.
Loan: Money borrowed from individuals or organizations to be repaid at a certain later date.
Loan Management: The skill of identifying factors that may lead to a financial debt such as non-essential expenses and unnecessary credit card usage, and correctly analyzing and planning credit sources, repayment date and repayment amount when taking a loan is necessary.
Financial Instruments: Investment instruments such as stocks, bonds, lease certificates, real estate certificates and pension funds that affect future cash inflows and outflows an denote ownership over cash movements, developed to secure funds or hedge against risks.
Investment: Allocation of resources or savings to a certain investment instrument for a certain amount of time to generate revenue.
How to Become Financially Literate
The first step in financial literacy is actually learning more about yourself. You can answer a few simple questions to assess your level of financial literacy:
- Do you plan your budget?
- Do you pay your loans and bills on time?
- Do you make cost-benefit analysis when shopping?
- Do you take steps to secure your future or yourself against unforeseen circumstances?
- Do you have trouble keeping up with economy news or understanding the information given?
If you find it difficult to answer these questions, you can start educating yourself, starting today.
Being aware of one's financial literacy is vital for understanding how much value this information will add to your life. You can take the first steps on this journey by reading books that will give you the basics of financial literacy or you can use one of the many resources available online. Following economy news and studying the concepts and terms you are not familiar with understand will help you gain a better understanding.
In addition to personal efforts, you can also participate in training programs that will make you financially literate. Various organizations, universities and NGOs develop and offer such training programs, which will teach you the core concepts as well as how to manage your budget, analyze risks and utilize your savings..
How to Receive Financial Literacy Training?
Today, many organizations, especially NGOs, online platforms and universities offer financial literacy certificate training courses. You can find more about these programs with a simple online search..
One of the more prominent projects developed to improve financial literacy in the society is the
“Economy for Everyone” platform of the Central Bank of the Republic of Turkey. The website offers content suitable for all ages and educational backgrounds, including infotainment videos and visuals on a broad spectrum of topics from the history of money to fiscal policies, and inflation to broader aspects of the economy.
The
Financial Literacy and Inclusion Society (FODER)’s website also offers an extensive range of content and resources including financial literacy training programs, books and studies, helping you develop your own roadmap to become financially literate. Another important project on the topic is the long-running “I Can Manage My Money” training program developed jointly by UNDP and the Habitat Association. The project includes financial literacy and budget management training programs aimed at young people as the primary audience.
Things to Keep In Mind to Become Financially Literate
- Realize that your income is limited but your needs are limitless, and analyze your expenses accurately.
- Income-expense balance can only be achieved with a consistent budget plan. Make a habit of creating weekly, monthly and yearly budget plans based on your expectations.
- Avoid spending more than you earn and taking unnecessary loans.
- Assess your risks accurately.
- Set aside some of your income.
- Make realistic financial plans.
- Inform and involve all family members in budget planning according to their age.
- Understand the fact that economy, while it may seem complicated, is a science that affects all aspects of life from income to grocery expenses, education costs to monthly payments, and endeavor to keep abreast of and comprehend developments and analyses.
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