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What is Financial Literacy?

When we learn a new language and are able to understand it, we are considered literate in that language. The same concept is applied here as well. Managing personal accounts, organization of personal budget, and efficiently investing falls under the learning curve of financial language/literacy.

It is a more organized way of spending money. Many who have mastered it have reaped its benefits lifelong. Therefore, a head start is very beneficial.

A Deeper Dive: All You Need to Know 

Spending money seems like an easy concept, and one must save more than they earn. However, it's not that simple. With the availability of loans, mortgages, different insurance plans (Medical, Car, etc.), more options to pay, such as credit and BNPL(Buy Now Pay Later), people now can spend money before they have earned it. That might seem complicated to comprehend, but recent evidence suggests that almost half of the urban population prefers to pay via a credit card if they have it.

Now, why would people do that? The answer lies in two parts:

  1. When the credit is repaid, it proves our capability of returning the amount to the bank on time (CIBIL concept).
  2. Different companies offer multiple discounts on the use of credit cards.
  3. Card payments are safer and easier to manage.

Economists suggest the best way to earn money is to repay loan amounts in easy installments. However, it is better to invest the loan amount into assets rather than purchasing liabilities with that amount. A good return on investment can help people generate wealth over time. On the other side, there are also risks involved, like inflation risk, market risk, liquidity risk, equity risk, and more.

How to learn Personal Finance?

  • Maintain a Balance Sheet - Record your every expense, such as rent, groceries, travel, clothing, fooding, savings, etc., and compare that to your earnings. Once you have an idea of where the money is being spent unnecessarily, it will be easier to put on a leash and save more.
  • Allocate Money for Everything - One should write down the significant expenses and put a total amount aside at the beginning of the month. Legendary former basketball player now a financial advisor, Shaquille O'Neal suggests that whatever the amount you earn, divide it in half, invest and forget about it. From the remaining 50%, divide it in half again and save it for emergencies. The second half remaining is the amount one must spend in their daily life.
  • Pay Bills Timely - Not only do banking institutions develop trust, but they are also more likely to provide further credit. You can earn more credits and earn more profits. More profits result in quick loan payments, further strengthening the trust factor. As easy as it may sound, this method has worked wonders for numerous people.
  • Understanding Market -It is one of the most essential yet not necessarily complex skills to learn in finance. The flow of the market decides whether you will make money or not. It's said that market fluctuations are random and are considered gambling. However, it is known that traders make their livelihood using the market. It is a social stigma that needs to be resolved. At worst, the market is based on calculated risk and nothing more.
  • Bonds - These are government assured capital return assets that provide funds for a long duration. They yield interests depending on the risk involved (somewhere around 5-10%) and are highly unlikely to default so they are low-risk asset classes. Experts, however, differ from this opinion of the general public and consider investing in stocks or equities as a much better option.

Importance of Financial Literacy

  • People often find themselves paying huge sums of money for a loan they took. Sometimes they keep filling installments for more than a decade. Countless situations like these occur every year, and most of them are due to a lack of wisdom in the finance sector.
  • Curiosity will yield fruitful results. You will tend to find more information about better companies to invest in and slowly and steadily you'll be a master.
  • The government often releases new schemes in different sectors. Investors find these schemes for a quick return. Staying updated will make you discover these ways. Every scheme or policy will have different rules and regulations, so it cannot be taught; experience will teach you this skill.
  • You'll never get scammed by people who exploit loopholes in the system and target innocent people. For example, someone tells you about a scheme that will provide 60% returns on investments in a few months. Their explanation might sound tempting to an untrained brain, but you'll be able to see right through them and save yourself from being part of that scheme. 


Some people earn significantly higher than the average Indian yet fall behind savvy investors in spending. When and where to use your money is all that matters in the end. Everything boils down to the fact that we humans must learn to manage our resources as efficiently and effectively as possible.

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