Introduction

 In this article you will learn about " Financial Literacy And Financial Education: Its Terms, Importance, Benefits For Students " in simple language so that you will be able to understand it. Financial Literacy and Financial Education are related but they are not the same. The organization for economic co -operation and development (OECD) defines financial literacy and financial education. Financial Literacy is defined as " a combination of financial awareness, knowledge, skills, attitude and behaviour necessary to make sound financial decisions and ultimately achieve individual financial well being". 

Financial Education on the other hand is defined as " The process by which financial consumers/investors improve their understanding of financial products, concepts, and risks and through information, instruction and objective advice, develop the skills and confidence to become more aware of financial risks and opportunities, to make informed decisions, to know where yo go for help and to take other effective actions to improve their financial well being ".
 

According to the OECD, a person must have knowledge in four crucial areas before they can be considered fully financially literate: money and transactions, planning and managing finance, risk and reward, and the financial landscape. Financial literacy can help people become self sufficient and attain financial stability by preventing them from making bad decisions. 
It is clear that although the term financial literacy and financial education are related, but they are not the same. Through the process of financial education, people develop financial literacy. The development of financial literacy helps users to make wise financial decisions that lead to persons financial well being. 

Importance Of Financial Literacy

1. Recognize your income and expenses: 

Making a budget is a crucial step in developing financial literacy since it allows one to truly grasp income and expenses. Once we have established a budget, we can monitor our spending and recheck it on a regular basis. 

2. Pay off debt and stay out of debt:

When comparing loan terms, looking for the lowest interest rates can result in significant long term savings, as can paying off full credit card balances in each month to avoid interest costs. 

3. Avoid going into debt or declaring bankruptcy:

Establishing an emergency savings account is a critical step in preventing debt from accumulating. Make a plan for regular savings and day to day expenses. 

4. Try for a safe retirement:

Through financial literacy we have a better sense of how much to save, what kind of retirement we want, and how to get there. 

5. Learn the value of saving :

Through financial literacy we start saving as soon as we can, even if it's just a little bit. Regular savings are a cushion for emergency conditions. 

6. Avoid financial fraud :

Financially literate persons are less likely to fall victim to financial fraud. 


Benefits Of Financial Literacy

  • Gives more self - Assurance while making financial decisions. With the help of financial literacy we are not depend on others to make financial decisions for us. We try to find best decisions for us by analysing each alternatives. 
  • Gives the ability to bargain. Through financial literacy we have a knowledge of interest rates on money we borrow. 
  • Makes it easier to defend yourself. The more we know about identity theft and interest scams, the better equipped we will book to guard against a victim of financial fraud. 
  • Increase our likelihood of reaching our objectives. When it comes to turning our financial aspirations into reality, having a greater understanding of what it takes to achieve those goals . 
  • Offers a higher standard of living all around. Understanding our finances helps us achieve more while reducing stress. The most financially literate persons seem to be among the best earners. People who had financial advisors also had higher levels of financial literacy. 

Need Of Financial Literacy

Sometimes we face the shortage of funds at the end of every month or are not able to buy the things that we really want due to shortage of funds. To solve these problems person needs to acquire knowledge of financial activities. We should know how to balance our incomes and expenses. Financially literate persons know how To earn, spend, save, invest and borrow money. Financial literacy help people become self - sufficient and attain financial stability by preventing them from making bad financial decisions.