What is financial education?

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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.

Financial awareness

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.

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How can learning about finances change your life?

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Not everyone is aware that learning about finances can change your life. They don’t know that being in control of your incomings and outgoings has the potential to make your life so much better.

Take me for example, 4 years ago I was struggling to make ends meet. I had a decent income, the average amount of outgoings, but I wasn’t in control of my finances.
Fast forward 4 years, and I can tell you exactly what I have in my account, what’s coming out over the next few days, and how much money I can spend on my day trip next week.

I managed to get where I am today, by working out my income and outgoings, and keeping a track of them every week. Let’s now take a closer look at how learning about your finances can change your life:

Take a look at what you’re paying for

Have a look at what you’re paying for. You are likely to be paying for regular and essential household bills, such as a mortgage, rent, insurance, energy, water and so on.

Now you’ve looked at those bills, you will also need to consider the ‘Non-essentials’. These are bills that you don’t need to have, such as TV subscriptions that you don’t really use, or that gym membership you never got ’round to cancelling. You may also want to switch from a cell phone bill that you pay monthly, to one that lets you add credit when you can. I know we can get used to paying out for these luxuries, but if you cannot afford them, they are doing you no good whatsoever. Start cutting down on these luxuries and make do without them. The money that you’ll save can be spent elsewhere, or you may want to put it in a savings account.

Start saving

Knowing how and when to save money could potentially mean that you have access to cash should you need it. Right now, I have enough money to put down a deposit for a house, and pay the first months’ rent or mortgage. This is because I have saved when I could, but it’s not to say that I haven’t enjoyed myself. I’ve still been able to go on vacation, and for nights out at the movie theater.

Saving just a little bit of cash each month can help if an unexpected bill comes along, or if you need the cash for whatever reason. You may not be able to save a lot each month, but it will all add up eventually, and that’s never a bad thing.

Pay more than the minimum amount on your credit card

I used to get by with paying the $5 minimum on my credit card, then I decided that I would double it thanks to the cash that I saved by budgeting. This meant that I was able to pay off my credit card a lot quicker, and I didn’t have to pay so much interest either. If you cannot afford to double the amount that you pay, add an extra dollar on top instead. $6 instead of $5 will still help you pay it off quicker, and you’ll be glad that you did when you get a credit card bill that says “Amount due: $0.00”.

Take a look at your budget at least once every six months

This is important as the amount of money coming in and going out can change. If you get a new job and you now earn more than you used to, you can afford a few more luxuries each month. Alternatively, you may want to save more, or pay off your credit card bill or loan a little quicker. Learning to take a look at your budget at least once every six months can ensure that you stay on top of your finances, and you won’t go overdrawn.

Know where you can make cuts where you need to

I know that right now, I could end my TV subscription, and visit my favorite place to eat a lot less than I do right now. I have already decided where I could make those cuts so that if and when the time comes, I can pull the plug on them and have the cash that I need.

Knowing where your finances are, and how to deal with them can change your life. You will be able to deal with your debt in a more constructive way, and ‘Balance the books’ so to speak, at least once a month. People who know how to budget, and what they can and can’t spend, are less likely to make bad financial decisions. They are more likely to save money, and therefore have a little bit to hand should they need to.

Learn how to budget, and let the process of controlling your finances make your life so much better.

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