Importance of Financial Literacy During Covid-19 Pandemic

Importance of Financial Literacy

Importance of Financial Literacy

In today’s modern world, the share of individual responsibility for making financial decisions grows with each passing day. All people need to be prepared for this. Savings, responsible financial decisions, and rational financial behavior are the basis of people’s economic well-being. A set of competencies that allow you to make effective financial decisions is financial literacy.

As per a survey, economic problems triggered by the COVID pandemic kicked 32 million people out of the middle-class category. Almost 70% of the entire population faced financial difficulties during the first and second waves of covid-19. 45% of all Indians did not have any savings before the coronavirus pandemic. Only 29% of all individuals had any savings. Another 26% had enough funds to survive lockdown periods with several restrictors.

That is why in crises, such as the COVID-19 pandemic, the relevance of financial literacy for most citizens increases even more. It helps them save funds for emergency use, compare risks, optimize the monthly debt, avoid unnecessary loans, recognize financial scammers, avoid falling into their trap, and lead a happy life during unfavorable situations.

Also Read : Tips To Get Your First Personal Loan From Banks and NBFCs in India

The Importance of Financial Literacy In Today’s Modern World

importance of financial literacy

People earn money every day, but they don’t know how to use them correctly. Throughout their life, many finances pass through their hands. They need to control the flow of money as far as possible. They must have sufficient knowledge to make informed decisions about the use and management of their money. Therefore, financial literacy is essential in a person’s life, well-being, and success. It is all about having a sufficient level of knowledge and skills in finance. It allows you to assess the market situation and make reasonable decisions correctly. Financial literacy promotes competent decision-making and minimizes risks. Thus, it increases the financial security of the population. It will help you think more rationally and plan for your future. It teaches us how to save, multiply, and create our savings properly.

Improve Your Financial Literacy With These Useful Tips

  • Browse Financial Newspapers Everyday

financial newspaper

To improve your financial literacy, start reading leading financial newspapers of India and different countries. Some prominent financial newspapers are Economic Times, The Financial Express, Business Insider, Business Standard, International Business Times, The Wall Street Journal, etc. Regular reading of all these newspapers will help you know how the world economy works. Furthermore, you will learn about the daily status of different currencies of the world, debt, credit cards, employment/unemployment data, inflation, share markets, cryptocurrencies, financial scams. A clear understanding of all these issues makes you a financially literate person. Therefore, you can make wise financial decisions according to the situation and lead a smooth life every day. Most newspapers offer their content free of cost, while some are premium.

  • Careful Use of Monthly Income

A monthly income and expenses table is a mandatory element of maintaining the family budget. This document reflects the entire financial life of the family. When you have a clear picture of what you have earned and where you have spent, then there are no questions about the money flowing through your fingers, the hole in your pocket, and the inability to lead a happy life. Many families stay away from emotional and spontaneous purchases- thanks to financial control. As a result, they have sufficient capital for a rainy day, long-term investments, vacations, children’s education, and other essential financial commitments.

Essential For A Healthy Family Budget:

  • Divide all your expenses into two categories- needs and desires,
  • Properly prioritize your cash needs for food, housing, medical treatment, transportation, insurance, and so on;
  • After allocating funds for basic needs, start saving and investing.

You should follow a few rules to allocate finances to expenses, savings, and investments correctly,

  • 50/30/20.
  • 50/15/5.
  • 30% on housing and
  • Budget planning.

Also Read : Personal Loans for NRIs – Eligibility Process and Interest Rates

  • Rule 50/30/20

Although, there is no perfect budget planning technique. But the 50/30/20 rule can be a good starting point. Divide the net income (after taxes) as per estimated expenses. For example- Suppose your annual salary is 600,000 rupees. Half of this amount (Rs 300000) you spend on basic needs- housing, utilities, credit, tuition, food, clothing, and so on. The final list depends on the individual needs of each person.

You spend the next 30% (180,000 rupees) on entertainment- a vacation trip, buying music equipment, etc. And, you can save the remaining 20% (120,000 rupees) for future use. Always keep in mind that what is suitable for one person is unacceptable for another. Earnings can change from year to year & your needs or desires. Opinions on saving and investments also change over time.

  • Rule 50/15/5

In this case, a person spends half of his earnings on basic needs, paying off loans and other debt obligations. He can use 15% for pension contributions and 5% as the reserve funds. As a result, you have 30% of unused funds. You can use the remaining amount as per your desire. This rule is not very different from the 50/30/20 scheme. Here, you divide 20% into two parts and redirect them to implement long-term goals- pension provision and reserve funds.

  • The 30% Rule For Housing

Here, you spend 30% of your income on housing-mortgage or rent. Many people consider this rule outdated. In recent years, real estate prices in India have increased significantly over half a century. But the incomes of many citizens remain approximately at the same level. So, the 30% rule is not suitable for many Indians. Instead, you can analyze the current state of the real estate market and calculate which is more profitable-renting an apartment or getting a mortgage. By optimizing the purchasing cost of real estate properties, even on debt, you can save more substantial amounts for other purposes in the future.

  • Budget Allocation

budget allocation

The main point of money management is- total expenses should not exceed the total amount of income. It will help you save and increase your capital to a great extent.

Fixed Expenses Periodic Expenses
Housing Rental Gym membership
Utility Bills Subscription to various premium services
Phone/Internet Connection Bills Domestic and foreign trips
Transportation bills Guitar lessons
Nutrition Concert tickets
Study Other expenses
Credit
Health insurance

Cost of Living= Total Fixed Expenses + Recurring Total Expenditures.

To calculate the annual expenses, multiply the number of monthly fees by 12. Then divide all costs by the yearly net profit, and you will understand how much money is left for other purposes. A regular calculation will help you identify unnecessary expenses that you can eliminate. The costs will not be the same each month because you may have one-time expensive purchases (for example, a smartphone, coffee machine) or unplanned expenses (laptop repairs, car repairs). When planning a budget for the year, divide all costs into 12 months. You can meet unscheduled payments with the help of reserve funds.

  • Maintaining A Good Credit Score

A borrower with a positive credit history can quickly receive a loan after meeting all terms and conditions and completing the required formalities. All banks contract credit rating agencies to evaluate the profile of borrowers and take an appropriate decision accordingly. Based on credit scores, financiers can conclude the borrower’s integrity and decide on the possibility of granting a loan or denying the application.

The main advantage of an impeccable reputation of the borrower is the ability to get a loan at any convenient institution at any time. Credit history sometimes affects the interest rate. Banks are more willing to hand over money at low-interest rates if their risks are minimized. Some financial institutions even offer special programs for bona fide borrowers. Good credit history is essential when you apply for a job. While trying to keep your credit score in good condition, you learn a lot of financial terms. It helps you to increase your overall financial literacy.

  • Learning More About Digital Banking & Its Challenges

digital banking

Since 2016 (when Reliance Jio entered the telecom industry), the digital revolution in the Indian banking sector has been in full swing. The coronavirus pandemic, self-isolation, and the transition to universal “remote control” pushed financial organizations to even faster transformation into “digital incarnation.” It is no longer secret that many Indians are ready to replace personal visits to the bank’s offices with online communication. For several years, Indian banks have been introducing products and services that you can obtain remotely. After the Covid-19 pandemic, several Indians are learning the art of digital banking and using it regularly. So what hinders the development of digital banking in India?

Today, the main problem with the development of digital banking in India is the inability to start customer service without its physical identification. While using applications of financial organizations, many users are worried about the security of their digital money and sensitive personal data. Indian banks are taking active steps to solve these problems. They are using biometric technologies to identify customers and offer different types of banking services remotely.

Despite India’s active development of IT technologies, the depth of implementation of remote banking services is still insufficient among 1.3 billion people. Even today, most Indian banks offer a standard set of services. Many customers withdraw all the money from their ATM cards and love to make payments in cash. However, the situation is changing fast in India after Covid-19. The tech-savvy young generation has started using Internet Banking and UPI services. The number of digital transactions is making records in our country. 2020 proved the importance of digitalization in all areas of the banking business. So, familiarize yourself with online banking procedures, the use of mobile payment apps, NEFT, IMPS, RTGS, etc. It will allow you to perform banking activities digitally.

  • Participating In Financial Seminars and Classes

Different financial organizations conduct seminars and classes to help people know more about various aspects of our economic life from time to time. Participating in such mass gatherings always helps boost financial literacy to a great extent in a short time. When making important financial decisions (investing your hard-earned money in LIC, share market, purchasing properties, etc.), seek recommendations from recognized experts. Moreover, it helps protect your interest from various fraudulent financial crimes, which are rampant these days.

  • Careful Management of Debt

Many Indians take loans to meet multiple financial obligations and fulfill their long-awaited dreams. The entire process of taking a loan, communicating with bank professionals, and repaying the debt is worth learning. You often apply for a loan and get a rejection from the bank. You made mistakes in the loan application, did not submit the required documents, your profile is unsatisfactory as the borrower, etc. There are many reasons why a bank rejects your application for a loan. Take advice from industry experts and see what it takes to apply for a loan and repay it successfully. You will learn a lot (about financial literacy) when it comes to carefully managing debt.

  • Learn From YouTube (Recommended)

Many people dislike reading text content every day by visiting newspapers. The language barrier is one of the main reasons people hardly show any interest in financial content. Many individuals don’t want to read text content no matter how knowledgeable it is. They can increase financial literacy by watching videos on YouTube- the world’s leading video hosting platform. Search about your favorite financial topic and watch informative videos. It will help enhance your financial literacy up to a great extent.

Conclusion

The threat of Covid-19 is still among us. Every day, different countries are struggling to combat this deadly virus. Today, it is exceptionally essential to know more about various financial terms and utilize them in our daily life as much as possible. The growing use of Internet banking and UPIs, theft of baking data highlights the importance of financial literacy. The more literate you are, the wiser financial decisions you can make. So, don’t waste your precious time and take all possible steps to increase your financial literacy. It helps people make better decisions (regarding finances), effectively stop fraudulent activities, and lead a happy fiscal life every day.