finance essay

finance essay

The Importance of Financial Literacy

1. Introduction

Section title: 2. The importance of financial literacy. The damage of financial unawareness. Even as of 2007, millions of American households (about 27% of the total) were either unbanked or underbanked, and 16.7% of households receiving annual incomes below $30,000 were financially marginalized. On top of this, millions of adults possessed varying degrees of financial illiteracy. This means a large part of the population spends more on basic banking and financial services and pays higher interest rates for the loans they are granted. As a compound result, they can benefit from tax code provisions less and may have higher expenses in association with home equity strategies. Unbanked families that are often shown to have used high prices as a reason for avoiding financial institutions would benefit from banking by having lower probabilities of loss to theft or other incidents as well.

The importance of financial literacy. For the better part of the 20th century, businesses and the economy were the subject of intense focus on the part of social scientists and policymakers alike. Schools taught skills-based programs, and focus shifted from the basics of reading, writing, and simple arithmetic to the industrial, technical skills students needed in a corporate economy. But times have changed, and so have the needs of the American people.

2. Understanding Personal Finances

The long-term benefits are more significant. Specifically, higher financial literacy could delay retirement as households participating more in saving and investment plans will have an additional source of income ready when they retire. This positive outcome in relation to savings will also support income growth and consumption expenditure. As a result, more companies will be encouraged to develop certain products leading to more available saving and investment options, which in turn corresponds to the important policy aim of supporting a more bank industry in China. This will therefore allow households to improve their wealth or financial support in retirement.

Individuals can also take steps to improve their financial literacy. Who is better placed to manage day-to-day finances than individuals themselves? When it comes to preferences and risk aversion, households are able to make more considered decisions than governments acting on their behalf. If China wishes to achieve the shift towards a services-led economic growth, ensuring that households have the knowledge of managing their personal finances will be critical. In the short term, improving financial literacy will allow households to be better equipped with the necessary tools to access a wider range of financial products, particularly those that are tailored for pension and risk management.

3. Investing for the Future

Telling her that she will have over $500 in only 10 years would catch her attention. This hopefully will lead to a good discussion about why the totals increase over time. The most thrilling statistic Martina decides is that after 40 years her deposits will be over $27,000 since she only deposited $480 over that entire time. This can be a great segue into the next topic of the time value of money and risk and reward, especially when the stock market is compared to her 3% savings account. You could tell her she could probably earn a higher return by investing in the stock market over that same time period to be able to qualify for the potential revenge.”

“The younger you are, the more risk you can take. And the more risk you can take, the more potential reward you can receive! Let’s take a look to see if Martina is right. She decides to deposit $1 monthly into a savings account that earns 3% interest compounded quarterly. How much will she have in 40 years? In 20 years? And in 10 years? If you know if it will be higher or lower at each point in time, you’ll be able to help Martina out. You can use this illustration of savings habits to explain the concepts of the time value of money, inflation and purchasing power and why people need to invest early.

4. Managing Debt and Credit

Credit is the ability to borrow money, goods, and services and requires the trust that an individual can pay it back. Credit not only covers loans and purchases, but credit is also used to gauge how responsible someone is. This judgment of character is important because it determines how much the lender is willing to lend an individual as well as the interest rate. Therefore, good credit is essential in today’s world for everything from employment to education. Becoming financially literate in credit will help individuals guard themselves against using debt impulsively and develop the judgment needed to recognize and assume good debt; hopefully, avoiding the debt treadmill.

Welcome to Managing Debt and Credit. In this learning module, we will study why credit is important, the pros and cons of credit, an introduction to credit reports, what to look for in a credit report, managing your debt and the risk of not doing so, the cost of borrowing, the management of borrowing, how to get out of debt, and the use of credit scores.

5. Conclusion

We know that not all individuals have the same acumen for managing their financial lives, and there are many, in fact, who lack even basic financial literacy skills or knowledge. Many studies, for example, have explored in detail the financial knowledge of both students and adults and have found that there is a lack of understanding of some very basic concepts across both demographic groups. We also know that even if individuals have some degree of financial knowledge, it is not always used and/or implemented and applied effectively to financial plans and decisions. Finally, there are also questions about the incentives of both policymakers and the public with respect to efforts to increase financial literacy. We provide a brief discussion of all of the issues below.

Requiring that schools teach money management skills or mandating personal finance courses can help individuals understand the importance of capabilities in dealing with their financial lives. It can also increase their financial literacy and their capacity to manage their services. Ensuring that participants can access health and other benefits, including those for which they may potentially be available, can result in and improve the savings of all participants, but of those often saved the least.

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