Business: Why is financial education important? Knowing about financial education is what you need to take better control of your economy. But what is financial education, and what are the keys to master it? If you want to learn more about properly educating yourself in personal finance, pay attention to this article.
In this article, you will learn why financial education is important to practice in your day-to-day life with no problem.
But first, what is financial education?
Financial education is the type of knowledge that allows you to understand how money works in the world. In that way, you learn how to get, manage and invest your capital.
A person who masters financial education can make informed decisions about their finances and is less prone to falling into debt or financial problems. So, what is financial education? We can summarize it in this sentence: getting people to improve their financial well-being through efficient money management.
What are the financial education terms that you must master?
There are five terms in financial education that you will always hear in this area, these are:
It is the money you receive for your work or service. A household can have more than one income.
It is the money from your income that you do not spend. In general, you should set a percentage of your income for this purpose. The only way you can not save even a small percentage of your income is that your expenses are higher than what you earn.
They have their classification, and just as there are necessary expenses (such as basic services), there are some that are not. Expenses are the financial commitments that we must pay each month.
Part of the money you earn, you can also invest. That way, your money won’t stay static in a checking account. Investments can be in the short, medium, and long term.
Here we can speak of “debt capacity,” which allows us to have a resource of money (provided by financial institutions) to acquire things. Good debt management allows you to have a good credit history that leads you to get better loans or credits (for example, a mortgage loan), while a bad debt can lead to bankruptcy in the worst case.
What are the keys to financial education?
Those who are clear about financial education will generally manage healthy finances. These are some keys that you should keep in mind:
- To have healthy finances, you must be aware of your income and expenses. That is why you must manage your budget.
- You must know what you earn and live accordingly. Leading a lifestyle above your monthly income will lead to debt.
- Never be late in paying your debts, whether they are those of basic services or those of credit cards or loans.
- Always maintain a good credit rating. This will allow you to access greater financial benefits.
- Don’t let your money go unused in the bank. Instead, invest it or enter it into a bank account that earns you higher interest for it.
- You must report any investment you make. In that sense, you should always evaluate the pros and cons of an investment.
- Prepare for the future. For this, you can create a savings fund for your retirement or save your money in an AFP or ONP.
Why is knowing about financial education so important?
The OECD defines financial education as the process through which financial users improve their understanding of financial products, concepts, and risks, develop skills to be more aware of financial risks and opportunities, make informed choices, and take action to improve their financial well-being.
Why is financial education given so much importance around the world today? In the first place, because of the existence of a diagnosis, based on international studies, that reveals the insufficient knowledge of the population of basic economic and financial issues.
The financial education deficit is one factor that has aggravated the effects of the international financial crisis, although it cannot be said that it was a monopoly of the common citizen. To this, we must add the increasing expansion and complexity of the financial product offering, which sometimes places the user in a position of vulnerability.
Financial education is not a course subject in schools. However, it is one of the basic aspects that children should teach. This type of education will determine the practices and habits such as saving, indebtedness, control of expenses, the generation of wealth vital in adult life.
That is why it is essential to promote a culture of financial education at all levels of education while having trained teachers who deliver more interesting campaigns aimed at children, adolescents, and families, especially in low-income areas.
So, not only is it enough to know what financial education is, but to implement it. In this way, it will be possible to encourage savings, investment in financial assets, encourage people and companies to make budgets (acquire loans responsibly, prepare for financial risks, etc.). Finally, financial education is expected to promote changes in the population’s behavior, making consumers act with more confidence and responsibility to benefit their well-being.
Now that you know why financial education is important, you can start educating yourself to manage your income more efficiently.