Financial literacy is a key factor that can change the way we live our day-to-day lives. Understanding finance is very important because the National Financial Capability Survey conducted by the Financial Industry Regulatory Authority (FIRA) concluded that two third of Americans are financially illiterate.
That makes it clear why most Americans struggle with their financial woes. Practically, the financial industry has changed drastically, with more than 25% of Americans relying on credit cards. However, it is significant to have a basic level of understanding of financial knowledge. Understanding finance will pave the way for better personal finance management.
Setting Up the Trap (Key Points)
- Understanding finance is important to managing personal finances.
- Financial literacy will help to steer through the debt problems.
- Getting the essential financial knowledge is important to do better with savings and investments.
- Financial literacy will help to manage the credit score.
Understanding Finance for Personal Finances
The only major reason for understanding finance is that you will be able to manage your finances effectively. Most of us fail to manage personal expenses such as monthly budgets and expenditures. Therefore, a basic level of financial knowledge will help consumers and householders to manage their money easily.
Countering Debt Problems with Financial Literacy
Every second person in America is under some sort of debt, such as student debt, mortgage debt, or bank debt. Furthermore, many also take debt on their homes, cars, or other necessities of life. Hence, this financial burden is sometimes very difficult to carry.
However, understanding finance will let you know your options to manage your debt easily. You will get to know the ins and outs of the debt system. Therefore, you can manage to clear your debts comprehensively without taking any risks or going bankrupt.
Understanding Finance for Savings and Investments
Savings and investments are the dreams of every household. Every person struggles to save and invest their earnings for their future retirement plans. These ventures will help you get handsome earnings after you retire from your job.
You will not be able to save or invest if you do not have ample financial literacy to manage your money. Therefore, understanding finance is of sheer importance to steer through financial problems and save for the future. In this way, you can secure your future financially and it will come at par with the retirement plans.
Understanding Finance for A Better Credit Score
A credit score is of great significance for Americans. It is a direct way to measure the financial management of a person. A person with a lower credit score will be regarded as a poor financial manager. Therefore, it is important to keep an eye out for the credit score.
Conversely, a good credit score will signify that you are doing good with your finances. Thereby, understanding finance is very important to have a good credit score in the long run. A good credit score is a reflection that you are financially literate.
Conclusion
Financial literacy is a hard nut to crack. However, it is important to know the basics of financial knowledge to manage personal finances. According to the survey reports of FIRA, only 30% of Americans are financially literate. Therefore, understanding finance is the need of the hour.
Keeping a check on your financial knowledge will let you manage your budget effectively. Moreover, you will be able to get rid of your debt problems more easily. Lastly, financial knowledge will pave the way for good credit scores and savings and investments.