What is Financial Literacy and Why is it Important?

In today’s increasingly complex world, being financially literate can be the difference between a comfortable happy life and one full of problems and stress.

Financial literacy used to be common sense

Once upon a time, things were so much simpler. People worked and were paid in cash each week. They budgeted for food, rent, and other necessities. Any cash that was leftover was often saved in a jar or under the mattress. Saved for a rainy day.

How did we get here?

But things changed as people bought their own homes with mortgages, took loans for cars, and soon began to purchase things on credit cards. Standing orders would go out one week, loan payments another, heating bills the week after that. People began to pay for entire summer holidays on their credit and debit cards and had no idea until they returned home two weeks later, how much they had spent. And somewhere along the line, people’s salary no longer appeared as cash in a pay packet but was transferred directly to their bank account instead.

It became almost impossible to keep up with what was going on and, increasingly, many people gave up trying to keep track.

Many became financially illiterate.

A great number of people found themselves getting regularly overdrawn or suddenly in debt. Often in huge amounts of debt that destroyed their lives. 

The world has become more and more complex

Since we entered the new millennium things have got even more complicated as financial institutions began offering the majority of the population access to credit opportunities. This easy money was often available to consumers regardless of their financial circumstances.

According to CNBC, the average American now has $90,460 personal debt with even young Millenials swimming in $78,396 of debt commitments.

Yahoo Finance recently published a story stating that 8 out of 10 British households are carrying debt in 2021.

Things need to change

While debt is often an ugly necessity in life that enables us to study, go on holiday or own our own homes, a lot of debt comes as a result of bad decisions and - let’s call a spade a spade - a lack of financial literacy. 

What is financial literacy?

Put simply. Financial literacy is the ability to understand what money is and how it works. In more practical terms financial literacy means knowing how to manage your money: This means learning how to pay your bills, how to borrow and save money responsibly, and how, where and why to invest. Some will argue that planning for retirement might also be part of this financial knowledge.

Why is it important?

Financial literacy can ultimately help improve the quality of your life and bring greater happiness, health, and confidence. By making better decisions with our money we can live the lives we want to choose. If you don’t become financially literate, you might live to regret it, spending much of your life paying off debt rather than enjoying the wealth you could have built from wise financial decisions. 

Can you learn to become financially literate?

Yes. And it is not as difficult as it might seem. By using a finance platform such as SPARQ it is possible to become better educated about money and make better decisions with your own finances. You can take full control of your finances, use dashboards to track your spending habits, put personal limits on expenditure, lock some of your savings away each month, and use gamification to educate yourself in a fun way about money.

Platforms such as SPARQ have been designed by Millennials for Millennials so that they can maneuver their way through the complicated financial world we now live in. Ultimately, users can become financially literate and reap the many benefits that come with this.