Why Is Financial Education Important In Today’S World?
Why is financial education important for everyone? SUSTAINABILITY| 18.04.2022 There is a growing consensus on the need to improve the consumers’ financial literacy, wherever they come from and whatever their background. Such financial culture is necessary to be able to pursue our life project in a reasonable way, with awareness of our personal finances and knowing how to manage the resources at our disposal,
Today we are required to participate in the financial markets and to have the means to pay, save, invest, insure ourselves and so on. It is therefore necessary for all citizens to possess the skills they need to improve their relationship with their personal finances and with financial intermediaries.
This is where financial education comes in. But what does it involve? The Spanish National Securities and Exchange Commission (CNMV) defines it as follows: ” Financial education enables individuals to improve their understanding of financial concepts and products, prevent fraud, make decisions appropriate to their circumstances and needs, and avoid undesirable situations arising either from excessive indebtedness or unsuited risk positions.” The last two years have been marked by the events derived from the COVID-19 pandemic.
- Such events are shaping a more complex and unstable reality,
- This new scenario is resulting in greater uncertainty in the economic environment, in the financial markets and, obviously, in our own lives.
- Nor should we forget that the crisis resulting from the pandemic has tested the resilience of agents and families in the face of adversity,
Adapting to this new context will require to a large extent the consolidation of skills to be able to make decisions and manage our personal finances in the long term. Due to the coronavirus crisis, the use of digital channels has greatly increased, something that we had already seen a few years ago with the acceleration of digitalization in the financial sector.
However, combined with social distancing and lockdown, it has marked a turning point that has sped up this digital transformation even further. This transformation is giving rise to new innovative business models. Although this variety of services provides the consumer well-being by adapting to new needs, the risks cannot be ignored.
As we mentioned earlier, the pandemic has also increased the use of digital channels by citizens who have not always been digitally and financially empowered. In addition, there are also segments of the population that are less familiar with technological advances and are therefore at risk of financial exclusion,
- Adding to this problem, in the wake of the pandemic we have also seen the reduction of physical branches, especially in rural areas.
- To mitigate these risks, we must provide the population with the necessary knowledge to interact adequately with the new digital environments and enable them to understand the financial products being offered to them and thus be able to properly manage their personal finances.
In recent years, the need to accelerate the transition to a circular, low-carbon economy has become evident. Here, the finance sector will play a key role in promoting sustainable finance, New concepts such as environmental, social and governance (ESG) criteria or socially responsible investment (SRI) have been emerging.
They will be the protagonists of this new era and will be the main focus for most companies. Given this context, financial education initiatives should also include tools to enable citizens to understand these new concepts and make financial decisions. Therefore, in the face of these present and future challenges, financial education has become a key skill as a fundamental element of development.
It is also an instrument of consumer protection due to the close relationship it has with our financial health, which, at the end of the day, has an impact on our personal well-being. Finally, it should be noted that financial education is also a key element in achieving the Sustainable Development Goals (SDGs) included in the 2030 Agenda, by promoting informed financial decision-making and influencing the acquisition of good saving and spending habits and responsible consumption, and consequently, enabling citizens to manage their personal finances well.
The fourth goal in the list of SDGs is to ” ensure inclusive and equitable quality education and promote lifelong learning opportunities for all,” This objective is based on the premise that quality education is key to preventing poverty, reducing social inequalities and providing people with better opportunities.
At MAPFRE we want to promote financial education as an instrument that can contribute significantly to the development of the 2030 Agenda. It is an essential tool for making responsible financial decisions and, at the same time, a crucial instrument for promoting knowledge in these matters.
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Contents
What is importance of financial education?
For emerging economies, financially educated consumers can help ensure that the financial sector makes an effective contribution to real economic growth and poverty reduction.
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Why is financial knowledge important in today’s time?
Importance of financial knowledge and decision-making skills – Strong financial knowledge and decision-making skills help people weigh options and make informed choices for their financial situations, such as deciding how and when to save and spend, comparing costs before a big purchase, and planning for retirement or other long-term savings.
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What is the importance of finance?
What Is Financing? – Financing is the process of providing funds for business activities, making purchases, or investing. Financial institutions, such as banks, are in the business of providing capital to businesses, consumers, and investors to help them achieve their goals.
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Why is financial education important for youth?
Early financial education for the benefit of youth EVER since the pandemic has taken a toll on the world economy, talks about financial literacy have been going around more frequently, given the challenging situation involving livelihoods and the critical need for people to have sufficient savings to survive rainy days.
This particularly points at youths, who have become more vulnerable economically, and more concerning is their low level of financial literacy. Hence, this calls for practical action plan, and it needs to start from the core foundation of the society – education. A study conducted by the Organisation of Economic Cooperation and Development (OECD) on 26 countries, including Malaysia, has shown that overall, financial literacy is already at its low.
Specifically, youth aged 18 to 29, financial literacy appears to be at a lower level, on the back of poor financial knowledge and less prudent financial behaviour. The study also suggests that financial literacy might be positively correlated to access to digital devices or services as digital use may be consistent with greater financial knowledge and more prudent financial behaviour.
- This can be explained given the present reality whereby almost everyone depends on social media or online portals to keep themselves updated about current issues.
- It was also reported recently that 40% of millennials are spending beyond their means, according to Finance Minister Tengku Zafrul Aziz.
- He also added that 47% of Malaysian youths have high credit card debts.
Additionally, another survey by RinggitPlus on financial literacy of Malaysians also revealed some worrying statistics about youth:
> Nearly 29% of youth only realised the importance of emergency funds since the movement control order;> Nearly 60% are unable to survive beyond three months;> Almost 47% spend exactly or beyond their earnings; and> Almost half of the youth have not started saving for their retirement.Since the current dire situation for youth has been reflected by these numbers, and given the youth’s low wages to afford living needs and underemployment, financial education needs to be consistently promoted and emphasised in the society.Some recommendations by the OECD to improve financial literacy do involve education, as follows:1. Look into the priority areas of financial knowledge such as simple interest, interest compounding as well as risk diversification, which are important for consumers choosing and using savings and credit products;2. Promoting small but consistent contribution of funds for emergency needs and;
3. Start providing financial education as early as in primary school in order to embed the knowledge of basic financial concepts comprehensively. Fortunately in Malaysia, efforts to pursue early education for youngsters to be more financially literate has started and they are expected to begin in selected primary schools early this year – a financial literacy programme.
The programme would be a collaboration between all Malaysia financial institutions, known as Financial Industry Collective Outreach, alongside guidance from Bank Negara Malaysia, and a particular focus would be directed towards the underprivileged communities. This is indeed a positive move that is in line with expectations and hopes but perhaps, Malaysia could start infusing financial education into the curriculum a bit earlier such as beginning at the age of six.
Generally, children are known for their ability to absorb information faster and easily compared with adults. Past literature has shown that children make great strides in economic understanding between the age of six and 12, in that children’s understanding is “essentially adult” around the age 12.
- By infusing financial education into the curriculum from an early age, it allows children to acquire the knowledge and skills to build responsible financial behaviour throughout each stage of education and life.
- For the syllabus structure, art of managing money should be taught – spending, saving, investing and borrowing.
Financial education does not have to be a “standalone” subject. Rather, it can also be integrated into other subjects, such as economics and mathematics, so that practical real-life experiences can be shown to the students. In-school education should be considered as an additional medium of learning or as an alternative to home education about financial management because not all parents are sufficiently equipped or privileged to teach their children about money and levels of financial literacy.
- Nevertheless, if it is possible, family plays a crucial role in shaping children’s financial behaviour.
- Past research has shown that better savings behaviour is associated with an “authoritative” (supportive but structured) parenting style.
- Other research reveals that there is a significant correlation between parental teaching of money management and higher future credit scores.
At the same time, there is a need to pay attention to the competency of educators who are responsible in transferring the knowledge to students in schools. Based on past studies, teachers’ knowledge and skills are critical to ensure effective delivery of financial education.
- So, educators from all disciplines should be provided with appropriate training related to financial management so that it can be applied through the teaching process.
- This corroborates well with the strategic priority and action plans laid out in the National Strategy for Financial Literacy framework (2019-2023) that was launched by the former government.
In other words, this framework needs to be continued and pursued as it is timely given the current situation. Financial education is a long-term process as it is difficult or not possible for one to absorb and adapt to new knowledge overnight or within a few days.
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What is a benefit of improving your financial knowledge?
Benefits of Financial Literacy Ability to make better financial decisions. Effective management of money and debt. Greater equipped to reach financial goals. Reduction of expenses through better regulation. Less financial stress and anxiety.
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What is the importance and role of finance in education department?
School Finance Management: How to Manage it Effectively? Struggling To Manage Your School Finances Effectively? Here Is How A School Finance Management Software Can Help You Financial management is one of the most fundamental practices in any enterprise or business including schools and other educational institutes.
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