What is financial literacy
What is Financial Literacy

What is Financial Literacy: Definition, Levels, and Importance

Financial literacy is one of the indicators of the country’s progress, you know.

However, many people still do not understand what is financial literacy and why is it important for the community. More about financial literacy will discuss below, let’s have a look!

What is financial literacy?

Financial literacy is the knowledge and skills of the finance-related community in order to be able to manage and utilize finances to the maximum. With financial literacy, people are expected to qualify education provisions related to finances so that they can take a stand and choose financial decisions wisely.

Levels of Financial Literacy

Well, after knowing What is Financial Literacy, then actually how is the size of a society said to have a good financial education? Find the answer in the following financial literacy indicators.

Well Literate

First, the indicator of financial literacy is well literate. A society can be referred to as a well literate if it has informational knowledge and confidence in products and financial institutions, ranging from features, services, benefits, risks, rights and obligations. In addition, the well literate community also has skills in using financial products and services.

Sufficient Literate

When people have knowledge and trust related to products and financial services institutions from all aspects, but the proficiency or expertise in using them is still minimal. Such a situation falls into the category of sufficiently literate.

Less Literate

The next level of financial literacy indicator is less literate. In this case, people only have knowledge related to financial products and service institutions, does not yet have a sense of trust in the financial products and services available.

Not Literate

The last point of the financial literacy indicator is not literate. This is the lowest level of financial literacy where people do not have knowledge and trust in financial products and institutions. So that it can be said that society is left behind by the progress of the times.

Why is financial literacy important?

Actually, why financial literacy is important for the community? Here’s the information.

More Know About The Types of Financial Products

The first importance of financial literacy is that people become more aware of various kinds of financial products. The wider the financial knowledge, the more familiar the public will be and familiar with financial products in the market. After knowing it, the public will be able to enjoy the benefits of each financial service.

Know How to Use Financial Products to Improve Well-Being

Furthermore, the importance of financial literacy is that people become aware of how to utilize and use financial products. After having enough insight into financial products and services, people will dare to try to enjoy financial products. In addition, they will select and consume financial products and services based on their needs.

Improved Living Standards

If the community has been able to skillfully utilize financial products and services, then the standard of living becomes increased. People become aware of financial planning and management efficiently and wisely. They will get to know the investment and learn to see opportunities as additional income.

Avoiding Fraud

The fourth point of the importance of financial literacy is that people avoid fraud. When people have adequate knowledge related to financial products and services, they will not be easily fooled by harmful products such as fraudulent investments, Ponzi schemes, monkey businesses, and so on.

Wealth Distribution Becomes More Even

Finally, the importance of financial literacy is that the distribution of wealth becomes more evenly distributed. The utilization of financial products and services resulted in funds from the community being collected and redistributed in the community.

People who are overfunded will keep it in products and financial institutions for profit. The funds will then be distributed to needy parties (e.g. For credit, business loans, and so on). Thus, everyone has access to achieve the same welfare so that their wealth is more evenly distributed.

Read more:
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Last Updated on March 24, 2022 by Blog Marketing Tool Team


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