Here's why financial literacy cannot be undermined

Financial literacy is one of the most important skills and yet one of the least taught skills across educational institutions.

Having various sources of finance is not as important as having knowledge of how to manage these finances. Financial literacy is a wealth that most individuals fail to even recognise.

Most people will study for high paying jobs, land high paying jobs and then continue living paycheck to paycheck without really considering the future after retirement. Usually, people use their income to first meet all their expenses and think that they will ‘save the money that is left’.

However, new expenses keep on arising. You tell yourself that you will save next month and you go ahead and buy the fancy shoes. When next month arrives, you may have to pay for medicines and doctors bills. Expenses keep adding on and soon enough you might even have family members dependent on you for their living. Money really does go out faster than it comes and the next thing you know is that you have to retire with little to no savings.

Living paycheck to paycheck also means not accounting for contingencies or setting up an emergency fund that will act as your safety net. Not providing for emergencies could force you to borrow money. Before you know it, your whole life will be spent working and paying off loans.

Let us understand the importance of sound financial practices with the help of an example:

Consider two individuals: Ajit who is 23 years old and James who is 28 years old. Both these individuals decide to invest Rs. 24,000 annually for 10 years at a rate of 8% in a savings bank account. Let’s check the balances in both these accounts when both of them are aged 60.

Difference in Ajit’s and James’ investment at the end of 60 years = 1034721.0

This example makes it evident how financial planning can make a difference. Money is a huge part of our lives. It is essential to know how to manage it. This was just a simple example. Various examples can be used to illustrate the importance of knowing how to manage your money. Financial literacy is a deep and vast subject, however it is never too late to start learning.