Jun 13, 2012, 02.40 PM | Source: Personalfn.com
The ultimate goal of improving your personal financial literacy is to make smart money decisions and improve your financial well-being.
Financial knowledge and awareness can help you take mature decisions on every topic of personal finance from your expenses, savings, budgeting to using plastic money wisely. Each of these decisions has an impact on your finances overall, and hence the ability to make good financial decisions is very important.
For example, many people lack the resources to help them rebound from the downturns of the type witnessed in 2008. This would have been avoided by having access to safe savings products by way of a contingency fund. Creating a contingency fund of 6- 12 months of your living expenses is good sense, and is a good financial habit.
Many investors were made to believe that insurance products such as ULIPs are the first place they should be investing their surplus funds, however this is a classic case of mis-selling done by agents to investors who were not aware of the product features. Had these investors been aware of the charges in the product such as the premium allocation charges, surrender charges, and so on that impact the returns of the product and can have a negative impact on the financial life of the product owner, they would not have opted for such products. This is where awareness and strong personal financial literacy would have helped.
Most of us will make many financial decisions including saving for retirement, managing our credit wisely, budgeting, tax and estate planning, insurance etc. which will affect our lives. Each of these decisions is prompted by our own individual needs.
To help make profitable financial decisions, it is necessary to understand the basic purpose of investing.
Example: While most consumers understand that retirement implies the end of work-related income, they may often fail to understand that as a person grows older; his ability to recover any financial losses goes down. It is this knowledge that can truly inspire the decision to save so that you take less risk with your retirement funds.
Improving your personal financial literacy will not only enhance your financial freedom, but also over time provide financial security and stability.
So how do you improve your personal financial literacy?