Friday, January 23, 2015

Essay on Importance of Financial Literacy

Financial literacy is a set of knowledge about financial markets, their functioning and management, its professional participants and their financial instruments, products and services, the ability to use them in full awareness of the consequences of their actions and the readiness to accept responsibility for decisions taken. 

According to a definition of the Council of June 2005 OECD, financial education is the process by which consumers or investors:
  1. improve their knowledge of products, concepts and financial risks;
  2. acquire through information, education or a lens Board, the skills and confidence necessary for:
  • become more sensitive to the risks and opportunities in financial matters;
  • make reasoned choices, knowingly;
  • know where to find financial assistance;
  • take other effective initiatives to improve your financial well-being.

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A broader conception extends financial education to the entire population and not only consumers/investors. It includes the cultural and less pragmatic dimensions, namely the understanding of the economic and financial world in which he lives. Financial literacy can then prove to be beneficial for the whole of the social body. Individuals can more easily optimize the management of their capital and financially anticipate contingencies. Reducing the risk of financial exclusion can also strengthen.

According to a study by the OECD's 2005, the research project on financial literacy, only few countries carried out systematic investigations but the conclusion was unanimous: there is everywhere a deficit of control of financial matters by the individuals. More worryingly, it is not only individuals that do not know or generally understand insufficiently financial matters, but they often believe to know much more than they actually do. An Australian investigation has shown that if 67% of those polled said they understand the principle of compound interest, but there were only 28% to give the correct answer to a problem based on this concept.

However, the evolutions of the social world and financial products make every day more urgent comprehensive financial education of the general public.

Financial education will therefore aim to give all citizens a corpus of knowledge and know-how to make relevant choices in the financial field, i.e. to be able to analyze what kinds of credits and investments are the most suitable for them. Moreover, the first objective is to give everyone access to basic financial tool that is Bank account. In all countries of the OECD, between 3 and 10% of people lacked access to a bank account, which excludes them de-facto from swathes of social life. The problem is even more marked in developing countries.

The integration of the most disadvantaged. Finally, the economy itself will be all the better when the financial behavior of the individual will have the necessary awareness and knowledge.

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