There is a very important quote credited to Warren Buffet. 

It goes, “Risk comes from not knowing what you’re doing.”

Risk. 

We know you don’t like that word. But, we’re here to tell you that while risk is inevitable in the world of financial markets, it is something that can be prepared for (if not combated) with the gift of knowledge. Financial literacy is an important tool that will ultimately help you understand investing, saving, and managing money better – making your financial journey a lucrative and rewarding one.

Today, we wanted to touch upon the key points of importance pertaining to financial literacy. Let’s get ahead of the risk by diving right in – 

What is financial literacy?

The meaning of financial literacy is the ability to understand and comprehend the various financial concepts that can help you build a concrete financial portfolio. This includes a thorough comprehension of the various elements of budgeting, the stock market, mutual funds, gold, taxes and tax-saving, emergency and insurance planning, and even retirement planning.

Financial literacy will ultimately help you take stock of your personal finances, and make informed decisions that align with your financial and personal goals. Bear in mind that whether you are an investing vet or an investing newbie – your financial success is dependent on your financial literacy.

Why is financial literacy important?

In today’s evolving economic landscape (where financial decisions carry increasing significance) the need for financial literacy in India has never been more pronounced, especially for young investors like you! India is poised to become an economic powerhouse – but this milestone cannot be achieved if the younger generations of investors aren’t equipped and ready with the right information and usable skills to navigate personal finances. 

Here are some pointers that will emphasize the importance of financial literacy to you – the young investor – 

1. Empowerment and Independence – Having control over your financial future can be empowering. And you can have control over your financial future by staying in the know. Ergo – staying in the know can be empowering. If you are a financially literate young investor, you will find that you are empowered to make smart and accurate decisions about your money. You are less likely to fall victim to scams or make impulsive investments based on hearsay because you are as much self-aware as you are aware of the market and its various functions.

2. Long-Term Planning – Financial literacy encourages you to think beyond short-term gains (As do we… Often!). A financially literate investor is more likely to engage in thoughtful long-term planning, which would encourage them to stay invested for longer periods of time, which can ultimately unlock big gains through the power of compounding. This also means that financial literacy is a great facilitator for helping you achieve financial goals like buying a house, funding higher education, or even retiring comfortably.

3. Risk Management – Ugh. Back to risk. But stay with us – this is important if you’re not a fan of the ‘R’ word. Understanding risk and return is fundamental to investing – no two ways about it! Financially literate individuals are better equipped to assess risks and potential rewards associated with different investment options, helping them make informed decisions that align with their risk tolerance. In fact, financial literacy can also help you look inward, and determine your own risk tolerance, so you can invest your money accordingly – equipped with everything you need to know about market risk, as well as your own capacity for it.

5. Avoiding Debt Traps – Ask any millennial and they’ll tell you that they do in fact remember learning about debt traps in school. We learned about it in history, civics, and business studies – and the takeaway was always the same – avoid a debt trap at all costs! Young investors who understand the implications of debt are less likely to fall into debt traps, i.e., a situation wherein it becomes impossible to pay back your debt, without incurring further debt. A debt trap is a vicious cycle that can be broken by being financially literate. Financial literacy about such circumstances can lend you the ability to differentiate between good debt (such as educational loans) and bad debt (such as high-interest credit card debt), thus allowing you to maintain a healthy financial profile.

6. Investment Diversification – You’ve been with us long enough to know that diversification is invaluable to your financial journey. It helps mitigate risk, while also exposing you to various earning capacities and investment horizons. You know this – because you’ve been educated on the matter (repeatedly!). Therefore, it is safe to say that financial literacy encourages diversification. If you understand the importance of spreading your investments across different asset classes, you are better protected against market volatility.

7. Maximizing Returns – With financial literacy, young investors can make informed decisions about where to invest their money to maximize returns. You can determine what combination of mutual funds works best to get you maximum returns, you can explore investing in digital gold – the sky’s the limit, if you manage to read and learn about the various investment options out there. You can also evaluate investment products, compare interest rates, and choose options that align with your goals more effectively if you’re asking the right questions!

Do you feel empowered yet? Financial literacy is the fuel that can propel your financial growth – as long as you are going to authentic sources for your information.

How can I be more financially literate?

There is no one way to practice financial literacy. You can stay financially literate by identifying what the best way is for you to consume knowledge. Maybe you’re a talker – speak to financial advisors and take advice based on their expertise. Maybe you’re a reader – refer to newspapers, blogs (like Deciml’s Wise Up!), and websites that are dedicated to imparting nuggets of financial wisdom. If you’re a listener – tune into a relevant podcast that explores various topics related to financial growth on the regular. If you’re a viewer – log onto verified sources on YouTube to consume knowledge that way! Whatever you choose to do, the end result is the same – you’re a smarter, better-informed, and more energized investor!

Like with the hunt for any kind of knowledge, we urge you to – above all – always stay curious! Just like no amount is too small to invest, no question is too frivolous to ask! It is important to keep in mind that while financial literacy will come to you with time, you do actively have to seek it out to keep making strides in your financial journey.

FAQs

• What is financial literacy?

Financial literacy is the ability to understand and comprehend the various financial concepts that can help you build a concrete financial portfolio. This includes a thorough comprehension of the various elements of budgeting, the stock market, mutual funds, gold, taxes and tax-saving, emergency and insurance planning, and even retirement planning.

• Why is financial literacy important?

Financial literacy is important because it can help you take stock of your personal finances, and make informed decisions that align with your financial and personal goals.

• What is a financial literacy program?

In a general sense, a financial literacy program would refer to the collective media that you use to gain financial literacy. This could include financial advisors, websites, blogs, videos, news channels, podcasts, and many more.

• How can financial literacy help me with long-term gains?

Financial literacy urges you to look at the bigger picture. This means carefully assessing risk, choosing longer investment horizons, and diversifying your portfolio. These factors all contribute to long-term financial gains.

• What is a debt trap?

A debt trap is an unfortunate and cyclical situation wherein it becomes impossible to pay back your debt, without incurring further debt. It is good to avoid getting into a debt trap.