Financial Literacy is the ability to understand how money works, how one makes money, manage the money and spend it. There is need to have an in depth financial knowledge to know how to make money work for you even while you are sleeping by investing in profitable ventures like in the stock market or money market. To understand how money works, its important to effectively use some financial literacy skills such as personal financial management, financial goals, budgeting, investments, e.t.c. The absence or lack of these skills is called financial illiteracy. We know that there are so many skills that will fall under financial literacy, some very important ones are house hold budgeting, management and paying off of debt and learning about various credit and investment products.
Research studies across different countries has shown that individuals as well as entrepreneurs do not understand the concept of compound interest and time value of money. Some persons also do not seek for financial information before taking certain financial decisions. lack of financial literacy can be damaging for an individuals's long-term financial success. Most potential retirees lack information about saving and investing for retirement. People fail to plan ahead and take on financial risks without even realizing it. Youths of today are mostly ignorant about financial information hence they make lots of errors.
Financial illiterate individuals will be more likely to run into debt burdens either through poor spending habits and not making correct spending decisions. Some young people will be looking for say a Hundred thousand Naira to start a business meanwhile they are using smart phones of one Hundred and Fifty thousand Naira.
There are resources for those that wish to learn about finance. The Central Bank of Nigeria has a framework that provides a roadmap for enhancing financial literacy to achieve financial inclusion in Nigeria and ultimately the attainment of the goal of Financial System Strategy (FSS) 2020. It is designed to reach all segments of the society with emphasis on specific target groups.
Financial education can benefit people of all ages and income levels. It can help young people that just started working to manage their income and expenditure and also save for future investments. It can help families save towards a future goal like buying houses, paying for their childrens education of going for holidays over seas. It can help older adults to save towards retirement and having a comfortable old age e.t.c.
HOW TO IMPROVE FINANCIAL LITERACY
1) CREATE A BUDGET: You have to track how much you receive as income every month, and also how much you spend.
2) SAVE BEFORE SPENDING: You can choose how much to save every month and stick to it. After you have taken out your savings for the month, you can then spend the rest
3) INVEST IN YOUR FUTURE: Make sure the money you are saving monthly is tied towards an investment goal and be sure to invest once you hit the target
In order to be comfortable, you need to plan, save and invest.
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