What is financial education, and why is it important?

The modern education system and policies have become a lot more sophisticated than the old education system. With better resources, educators have introduced a wide variety of educational branches to the students and are teaching them.

However, the education structure needs to add a very important block of teaching to it, that is financial education. Financial education is the need of the hour, and it is an obvious fact that without the knowledge of finance, future stakeholders will miss out on a lot of things. 

Financial education is a rising need for students that can expose them to the real and competitive world. 

What is financial education?

Financial education, also known as financial literacy, is the possession of skill set, conduct and knowledge that permits any individual to make statistical decisions regarding monetary matters. It allows an individual to be confident in the field of money and, with the awareness, take informed calls on what to do and what to avoid. 

Financial education provides a person with a wide range of knowledge about the current financial status of a state or nation, about the market values of goods and services and about the currency. It also makes a person aware of the importance of capital investments and transfers. 

Also, there are different kinds of financial education, like budgeting, investing, borrowing, taxation, personal financial management, etc. 

The benefits of financial education

There are many practical and logical benefits of financial education. In a world where capital controls almost every action and is responsible for the working of many legal bodies, how can financial education not be beneficial under such circumstances? 

The entire world realizes the need for financial literacy, and many countries have already started teaching their students about its importance and benefits. To understand the benefits and importance of it, let’s first discuss a few proven facts and statistics. 

• In the United States of America, almost 80 percent of the entire population lives paycheck to paycheck;

• Almost 190 million people in America have ownership of credit cards;

• In India, the latest poverty rate is almost 15 percent. Also, countries like Sri Lanka, South Sudan, the Democratic Republic of Congo, etc, have even worse poverty rates due to a lack of financial literacy;

• Unable to manage their economy, countries like Pakistan, Greece, Iceland, the United Kingdom and Slovenia are in huge financial debt. 

Based on the above stats, one thing is clear, not only at the individual level, but at the international level also, financial stability plays a very crucial role. On the other hand, countries like Sweden, Australia, the United States of America and Canada are enjoying the financial stability they have. 

Hence, it is clear that financial education alone can show us the path to harmony. That brings us to the discussion on the benefits of financial education. Let’s throw light on the major benefits of financial education. 

1. Proper financial education clicks open young minds and allows them to make appropriate financial decisions;
2. An individual becomes capable enough to manage savings, investments and debts without worrying about the collision of these three;
3. We all have financial goals to achieve, but we often fail miserably in achieving them. However, a person with well-structured financial knowledge will climb the ladders quite easily;
4. Better regulation of money will lower expenses at a personal level and will help in avoiding unnecessary financial drought;
5. People often panic and suffer from anxiety attacks due to mishandling money. In that case, financial education will save your mind and body from exhaustion;
6. A well-taught person will be strictly aware of the benefits and drawbacks of credit cards, loans, investments and insurance. The person can choose wisely from the options available instead of being lured into money laundering traps;
7. We are all equally aware of the fact that there’s a certain point in time where the human body will not be capable enough to do the work every day to earn money. In that scenario, the ones with a well-planned retirement policy can only sustain. Financial literacy is such a long-term planner that even when you don’t earn money, it will make sure that you have money. 

How to introduce children to financial education?

Children should be taught about financial education in a very meticulous way. To start off, inform children about the source of the money and the amount of expenditure. They should be taught about the three principles: giving, saving and spending. 

Give them a small allowance to see how they handle the money. The concept of putting money in piggy banks will help them learn about the importance of organizing money and its optimum utilization. 

Also, the modern generation deals a lot with digital platforms. Hence, parents can advise their children to play games that involve money management. 

In a nutshell, financial literacy is a crucial branch of study that is very important in our lives. Not only does it ensure broad awareness about the economy, but it also prepares future stakeholders to deal with crises. Financial education can also help in reducing the unemployment rate by a great margin. 

Read more: How the 50/30/20 budget rule can transform your finances