The importance of Financial Literacy

Financial education is something that plenty of us agree all across the world isn’t given out nearly enough. Whilst plenty of people are happy to do their own research and become clued up of their own accord, it is important to ensure we are all knowledgeable in what our finances are doing, what things to consider when taking out credit and other such financial matters.

So why is financial literacy so important? It is important to know exactly where our money is going and where it is coming from. Learning about debts, whether they be good or bad, is very important to – knowing whether taking out credit for something in particular is a good or bad choice.

Recent survey data from Wonga polled over 18,000 online loan customers to see what understanding they had of financial issues and where they would spend their money or credit if they had it. Whilst many would take out credit for important things such as a house or university education, there are people who would consider taking out credit for something that won’t benefit in the long term – bad debts such as for a holiday or for the latest gadget or fashion item. With certain celebrities causing certain clothing items to sell out within minutes, is it any wonder that people don’t consider the fact that they are taking on a bad debt for a few moments of happiness? Often these clothing items aren’t that cheap so buying them constantly can lead to spending a lot of money (or credit).

Shockingly it isn’t just everyday people who take on bad debts for things such as fashion or gadgets – recent news told of Kanye West’s massive debt to do with his obsession with fashion and trying to get his fashion line off the ground. So why isn’t financial education more prominent in the world we live in today?

Knowing the difference between good and bad debt is just one aspect of financial literacy. Knowing whether that item you wish to buy is worth it overall is something that always needs to be considered. So what are the three points to always consider when thinking about taking out credit?

–    What is the credit for? Something long term like education or a house or a little more short term, such as a holiday or the latest smartphone or tablet?
–    Can you afford it? Is the credit repayment achievable? Can you use existing funds to avoid taking out credit?
–    What will the cost be overall? This means taking into consideration the interest on top of the credit agreement and whether the overall amount is an achievable amount to repay without going into financial hardship.

Learning the differences between these type of debts and whether they are affordable for you personally may just be one aspect of becoming financially literate but it is a big one. By becoming educated about debts and credit agreements, it makes it easier to be in control of finances and know whether something is worth it in the long run.