In a recent daily newspaper publication, it was printed that 1 in 8 Kenyans had defaulted on a digital loans. When talking with defaulters it was discovered there was a low rate of financial literacy. There are many Kenyans have had very little understanding of finances and the potential impact it has on their lives until it is almost too late. Increasing your financial literacy can help you avoid the pitfalls of debt and help you
What is Financial Literacy?
Financial literacy is possession of the set of skills and knowledge that allows an individual to make informed and effective decisions with all their resources. Financial literacy helps you to navigate the financial system in order to help you to make better financial decisions and manage money.
Another name for financial literacy is financial capability. It is the confluence of finance, credit and debit. With the knowledge you are able to back financial responsible decisions- Decisions that make an impact on your day-to-day lives. Financial literacy can include what is a bank account? What doe using a credit card mean? How to avoid debt? How to use a loan? How to create budget ?etc.
Financial literate people demonstrate a strong grasp of financial principles, risks and pitfalls and are able to make sound decisions.
So, why is it important?
In the past cash was used as the main form of exchange but today it is rarely flashed. We use MPESA, debit cards, credit cards, online transfers, cheque, etc. We also now have more choices for using and extending credit, making it all too easy to accumulate debt fast. Without proper knowledge it is easy to get into financial trouble.
There are also more complex options for saving, investing, obtaining credit etc. Products are now more sophisticated, asking consumers to choose among different options with different rates. They are making decisions that are not adequately educated on to make. An example of financial literacy, is being able to know what your options are when savings, once can buy a home, invest in a business, save in a retirement account
There is a lot of decision-making pressure, longer life spans. Here are banks, SACCOS, insurance firms, financial service companies. Why does it matter? Studies with high financial literacy=plan for retirement. Those with low financial literacy have less wealth. Any improvements in financial literacy will have profound impact and their ability to provide for the future. It is imperative that consumers any improvement in financial literacy will have a profound impact on consumers and their ability to provide for their future. Recent trends are making it all the more imperative that consumers understand basic finances, because they are being asked to shoulder more of the burden of investment decisions in their retirement accounts – all while having to decipher more complex financial products and options.
Some of the subjects to read up on in order to improve your financial literacy are financial planning, budgeting, financial planning, money management, understanding loans and credit, options for retirement, how to invest, the major financial products available etc. To learn more about your finances, read business sections of newspapers, check financial websites online, books, attending financial workshops and classes.
Learning how to read financially is not easy, but once mastered, it will ease your financial burdens tremendously.