Financial literacy is an essential skill necessary for people to manage their income and achieve goals. Financial literacy can be defined as knowledge about financial planning and management that allows making reasonable choices about money spending and saving (Hamid & Loke, 2021).
Indeed, proper cash management leads to lower debt accumulation and higher retirement savings. Wise cash management prevents difficulties associated with finances throughout one’s lifetime. However, knowledge alone cannot provide complete freedom for personal financial planning because good cash and credit management behavior requires strategic thinking and practice. Financial literacy is crucial for developing rational money-saving, spending, and investing habits to ensure intelligent cash management and higher lifetime savings.
Intelligent personal financial planning results in better cash and credit management, while the poor distribution of resources can cause bankruptcy. Proper money management skills include assessing current financial status, prioritization of spending, timely bills payment, and minimal overspending (Hamid & Loke, 2021). The sound assessment of available cash allows planning expenditures accordingly. However, financial management is not part of the school program; therefore, many young people lack knowledge and habits that could prevent them from debt and poverty. When personal finances are insufficient, people tend to get loans, which often leads to overspending behavior and the inability to manage credit.
Unfortunately, many of them only seek financial assistance only if they have issues receiving or paying loans. Indeed, education about financial planning and cash management earlier in life would be beneficial for society to reduce the gap between classes.
To sum up, financial literacy is the combination of knowledge and habits that ensure proper credit and cash management to increase savings to achieve specific goals. Furthermore, it allows people to plan their income reasonably, have higher lifetime savings, and lower debt. Popularizing financial education will help people understand personal financial planning and develop skills to earn and save more to help reduce the difference in living conditions between social classes.
Reference
Hamid, F. S. & Loke, Y. J. (2021). Financial literacy, money management skill and credit card repayments. International Journal of Consumer Studies, 45(2), 235-247.