Digital transformation has enabled people to access financial products that were previously restricted to only the high net worth individuals. But the rise in internet banking has exposed the glaring knowledge gap when it comes to financial decision-making.
Besides helping the individual make informed spending, saving and investing decisions, financial literacy also helps in understanding inflation, interest rates, and compound interest and how they affect your finances.
Last year, amidst the cost of living crisis in the UK, 44% of adults said they would be in much better shape financially if they had been taught basic money management skills.
Why is financial literacy important?
- Make informed financial decisions
Financial education can help people make informed decisions regarding budgeting, saving and managing debt which can enhance their economic well-being .
- Avoid costly decisions
With sound financial knowledge, individuals can avoid making costly financial decisions, such as taking on too much debt or failing to plan for retirement. Just another reason why financial literacy is essential!
- Improve financial stability
Financial literacy can help people to plan and prioritise saving, spending and investing to achieve their personal financial goals, which in turn can contribute to economic stability.
How to improve financial literacy?
Financial literacy is an important aspect of personal and economic well-being. The UK Government has introduced several initiatives in a bid to improve financial literacy. One of them is the Money Advice Service - a free service that offers information, advice and tools to help people manage their money.
Fintechs such as GoHenry have also come up with different ways to make learning fun for young investors. Apart from this, many non-profit organisations, such as the Money Charity, and MyBnk work to promote financial education in the UK.
Some of the suggested actions include having more discussions on topics about budget planning, credit scores, mortgage application and long-term financial planning within the school curriculum to boost the quality of financial education.
A TISA and Appinio survey found that younger respondents felt more confident than the rest in managing their finances through apps - a clear sign that financial education has the potential to develop well-prepared individuals.
Want to know more? Check out this research that talks about the benefits of financial literacy and how the government and companies can help improve financial literacy in the UK.
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