Unlocking Financial Freedom: The Imperative of Enhancing Financial Literacy

There is a perception that financial literacy is only required for those studying or working in finance fields. However, in the modern economic driven society, every individual can benefit from developing financial literacy. 

Financial literacy is the ability to understand and effectively use various financial skills, including personal financial management, budgeting, and investing. Key aspects of financial literacy include knowing how to create a budget, plan for retirement, manage debt, and track personal spending, which are skills required for all. When you are financially literate, you have the essential foundation for a smart relationship with money. 

Importance of Financial Literacy

Although a lack of knowledge on financial literacy may seem like individual problems, they have a wider effect on the entire population than previously believed. The lack of knowledge of mortgage products prior to the 2008 financial crisis created widespread vulnerability to predatory lending. The financial impact of that crisis affected the entire economy. Having a foundation of financial literacy can help people to prepare for financial emergencies and prevent them from making devastating financial mistakes.

Principles of Financial Literacy

• Budgeting - A commonly used personal budgeting method is the 50/20/30 rule. It entails dividing your after-tax, take-home pay into three areas: needs (50%), savings (20%), and wants (30%), making sure that you have enough money saved up for emergencies. 

• Investing - an effective way to put your money to work and potentially build wealth. Smart investing may allow your money to outpace inflation and increase in value.

• Borrowing - financial products such as mortgages, student loans, health insurance, and self-directed investment accounts have grown in importance. It is imperative for individuals to understand how to use them responsibly.

Improving Financial Literacy for All

Global data indicates financial illiteracy remains widespread:

• Only 24% of millennials worldwide demonstrate basic financial literacy. (S&P Global FinLit Survey)

• Across G20 countries, only 33% of adults are financially literate. (Standard & Poors)

Financial illiteracy is an urgent issue that must be addressed. Rapidly developing technology has resulted in innovative financial products being created (eg. digital banking platforms, robo-advisors, cryptocurrencies…) Although this provides easy access to abundant financial options, this also allows predatory fintech providers to market excessive loans or investment scams online. Literacy is vital to maximise convenience while avoiding traps in the fast changing fintech landscape.

Advancing financial literacy requires education initiatives at national, community and individual levels. At a national level, governments can implement financial literacy as a core component of high school and university curriculums, as well as public awareness programs, to increase accessibility to financial education. As individuals, you can take initiative to strengthen your own financial literacy by taking advantage of free online courses on finance and accounting to build knowledge at one’s own pace.

In conclusion, financial literacy has become an essential skill in today’s world. A strong foundation of financial literacy can empower individuals to make decisions to support various life goals, such as saving for education or retirement, using debt responsibly, and running a business. When citizens broadly understand money management, debt levels decline while savings and investment rise. This accelerates economic growth and job creation. Education is the key to securing a successful financial future. 

Works Cited

Fernando, J. (2024). Financial Literacy: What It Is, and Why It Is So Important To Teach Teens. [online] Investopedia. Available at: https://www.investopedia.com/terms/f/financial-literacy.asp. [Accessed 2 Apr. 2025].

The Wall Street School (2023). The Importance of Financial Literacy in Today’s World. [online] Medium. Available at: https://medium.com/@thewallstreetschool/the-importance-of-financial-literacy-in-todays-world-975faeba2676 [Accessed 14 May 2025].

‌Wells Fargo Advisors. (2025). Why Investing is Important. [online] Available at: https://www.wellsfargo.com/goals-investing/why-invest/ [Accessed 2 Apr. 2025].

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