Introduction to Financial Literacy
Coauthored by Smriti Bansal
Food, shelter, clothing, education, and medical expenses are the most basic human necessities. But we can’t afford even a basic lifestyle in today’s world without financial planning.
But are we happy with just a basic lifestyle?
Most of us dream of travelling abroad, buying that bike or car with our first salary. Maybe we want to buy nicer clothes or gift things to our parents or friends. Some of us dream of a fancy wedding, or buying that dream house. Maybe we aren’t thinking of our children’s education or a comfortable retirement yet, but as people grow older, they start realizing that these are things that also need planning.
All such dreams and desires, as well as the quality of our life in many significant ways, depend heavily on our financial resources and planning.
Most of us understand the importance of money at an early age. And so, for a lot of people, increasing their income becomes the most important thing. And it makes sense; if money is so important, the more you earn, the more secure your situation in life is, the more dreams you can fulfil. So most young people when asked how they plan to secure their futures, share that taking up a job offer with a bigger pay packet is the secret to financial security.
But earning more is actually just a part of the entire picture. The rest of the picture is all about gaining financial literacy skills and planning our personal finances so that whatever the situation of the economy, you are safe financially.
Managing finances is not something that is easy for most people. You may have heard people sharing their financial goals. Some of the most common ones include having a large bank-balance, investing in property or retiring early and comfortably. And while most people speak about money and the need to earn good money, it is a really small percentage of the population that truly does a good job of managing all aspects of their finances well.
‘Earning more’ versus ‘Having more’ money
Most of us get mixed up between making more money and increasing one’s net worth. In the absence of this understanding, people get caught up in the rat-race. As a result, business owners end up trying to add more clients; professionals strive hard to secure better-paying jobs or finding other ways to increase their cash flow.
While ‘earning more’ is certainly one of the most effective methods to rise up the financial ladder, it is only a small part of personal financial planning.
Your budgeting & spending habits, insurance policies, credit cards, mutual fund investments and tax planning have a much greater impact on your overall finances than your income.
At Lokyatha, we want to help you with the groundwork to become truly financially empowered. That is certainly a long journey, but it begins with basic financial literacy skills.
Let’s start at the very beginning...
‘Personal finance’ is a term that covers managing your money as well as saving and investing. Personal finance aims at helping you meet your financial goals keeping in mind your income level and financial constraints.
Every individual (whether single or not) has financial goals and desires. Personal finance helps fulfil those goals.
Personal finance planning helps us with our short-term financial goals (e.g. buying a TV, a new phone, or a car), as well as our long-term financial goals (e.g. planning for retirement, covering health risks through insurance, or saving for children’s education).
But where does one begin?
A good place to begin would be becoming ‘literate’ when it comes to the basics of personal finances.
Financial literacy is a broad umbrella term that covers critical areas such as:
- budgeting & saving
- mortgages (house loans) & other debts
- tax planning
- investments & retirement planning
- estate planning (how to manage money and dependents when someone dies)
Should everyone be financially literate?
At Lokyatha, we believe that everyone must be financially literate. It doesn’t matter whether or not you are an active income generator.
You could be any of the following:
- a salaried, business owner, or freelancer
- a homemaker
- a student
- single, in a relationship, married, divorced, or widowed
Understanding the basic principles of financial literacy is absolutely necessary for each and everyone living in today’s world. Unfortunately, from childhood, we attend schools where we are trained to be employed. The hope is that we will eventually earn money to support our families and ourselves. Our education system imparts knowledge on various subjects ranging from language, mathematics, to the different sciences.
But we don’t learn in school the basics of personal financial planning and management which is one of the top life-skills.
Parents = Conservative teachers of finance
Our parents are our first teachers in life. However, when it comes to finances, most Indian parents have a conservative outlook. Unfortunately, their (typically) traditional and conservative approach towards handling money may have an influence on us.
The prior generations’ financial decisions have mostly revolved around simple financial tools such as fixed deposits, the Kisan Vikas Patra (Post Office savings scheme), recurring deposits, basic insurance schemes, and maybe some real estate. For them, financial planning was focused on these options since these were the popular tools available.
However, things have drastically changed since then. It is unlikely that our parents used credit cards or online wallets which are common for us, the younger generation. Similarly, there are newer tools and options available that can help in making money multiply, that go beyond the traditional tools listed in the previous paragraph. The important thing for us is to go beyond our parents’ and our own comfort zones and learn about them.
Conclusion: Financial literacy is the A-B-C of personal finances
It is generally believed that our life or destiny is a result of our actions or our karma. Our actions or karma, in turn, are the result of our mindset. So, if you want to change your karma, change your mindset. As far as your finances are concerned too, a shift in your mindset can result in a shift in your financial destiny.
If you want to change your financial destiny, change your financial mindset.
Through our content at Lokyatha, we want to nurture you with simple and easy to digest financial lessons that will help you to grow your net worth over time. Implementing these lessons in your daily life as early as possible will help you to attain financial freedom early on in life so that you are free to live the life that you dream of.
An important warning
We are not here to give financial advice that will make you rich overnight. In fact, we strongly recommend that you stay away from people who make claims of helping you become rich quickly. (More on that in later posts).
Our vision is to improve financial literacy among people of ALL age groups, especially young adults who have just entered the workforce. We truly believe that building a favourable financial destiny requires dedication, patience, strong willpower, hard work, and commitment to continuous learning.
Our goal is to deliver the most relevant financial literacy lessons for your long-term financial well being. Stay tuned for more powerful financial lessons and money hacks to help you with your financial journey.
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Disclaimer: This article is for educational purposes only. It should not be considered financial or legal advice. Please consult a financial professional before making any significant financial decisions.