Financial education is the process of teaching someone about how the world of finance works. Of course, it’s unlikely that this type of teaching will delve very deeply into the world of finance, but it will touch on many different subjects such as interest rates, mortgages, college funds, and so on.
Why financial education is important
Financial education is important because it helps to prepare people for life. These days there are far more financial choices to be made than there were just 20 years ago. Therefore knowing what type of interest rate you should look out for, or when you should open a savings account could be paramount.
Any financial decision made by someone who is leaving school and entering the work-force for the first time, can potentially impact the rest of their lives. Taking out a credit card so they can pay for a summer vacation, can ultimately leave them in debt for years.
Taking out a pension in your twenties for example, means that your pension pot will be so much bigger than if you had taken one out in your forties. Knowing when to make these important financial decisions can therefore impact your life for the better, if you make the right ones of course.
Financial education is also important because it encourages people to live within their means, and not apply for every credit card going. It also encourages the use of a budget, which will ensure the individual in question has a much more stable financial future than someone who doesn’t use one.
The importance of a bank account
Being educated about the importance of a bank account, is paramount. If you have a bank account, your pay check can go straight in there, any benefits you receive will go straight in there, and you are more likely to be offered a mortgage if you can prove your income via the use of a bank account.
When an individual is taught financial education, they are taught to be financially aware. This means they can look out for those dodgy interest rates that some pay day lenders like to add to their bills. It also means that they have a better handle on their finances, and enter the world of work, feeling less pressurized to take out every credit card or loan they are offered. They will also be aware of the risks associated with loans and credit cards, and are therefore less likely to get into bad debt.
What can be done?
Although schools do teach students how to use money, what denominations it comes in, and where you can buy things, that’s not always enough. In fact, students need to know more than simply how to spend their cash, they also need to know how to manage it.
Encouraging students to learn how to budget will ensure that they are more financially aware, for the rest of their lives. They also need to know about various financial decisions that they may need to make in their lives. For example, they will need to know about mortgages and renting property. They will need to know about pensions and savings plans. Students will need to know why it’s good to have a bank account, and how having a credit card can get you into debt if you don’t pay the balance off.
They don’t know how to manage their money
Financial education is so important, because young people are leaving schools and not knowing how to manage their money. Graduates who all of a sudden have more money than their parents ever did, need to know that saving what they can, will help to protect them should their income suddenly decline. Ultimately, younger people will make ‘Bad’ financial choices and spend a lot of their salary on things they’ve always wanted (At least when they first enter the work force in any case), but if they are armed with knowledge, they may start to make the right decisions, sooner rather than later.
Financial education is so important, it can ultimately mean that people no longer make bad choices, and that they have a lot more freedom and knowledge when they do eventually make a financial decision. Giving someone the knowledge that they need, can mean that their life is less worrisome, and that potential financial burdens are lifted from their shoulders.
Learning about finances
The young, the middle aged and the old need to know how to work with their finances, and make the most of it as best they can. This is why financial education is so important, and why it needs to start being taught in schools and colleges today. Community centers may also want to set up classes that teach people how to budget, and how to save cash. This will ultimately lead to fewer financial worries, and better financial decisions being made by all.Continue reading →