10 Reasons Why Financial Literacy is So Important


The core reason, why financial literacy is so important is the need to acquire knowledge, skill, and the ability to manage various financial activities successfully.

Those financial activities could range from income, budgeting, saving, borrowing, and investing. If we can utilize the money that slips into our care effectively it means, we can be able to achieve financial goals.


We can perform financial activities in three ways, either individually or in households, in our various organizations, or when in a position to manage public finances.  The most essential aspect why financial literacy is so Important is to gain the required knowledge of properly handling the funds we bear the responsibility of.

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What is financial literacy?

Financial literacy is the ability of an individual to gain the necessary skills and knowledge to carry out financial activities. It goes on to mean the ability of an individual to make concrete and guided decisions toward attaining effective financial goals. A complete understanding of financial management is needed in this regard.

The process of cash inflow, outflow, budget, planning, savings for the future, and a way of deriving more cash inflow is not an exemption.  

Financial literacy becomes an option in every financial sector, especially in personal finance where individuals represent a visible image that controls all monetary activities.

For instance, if an individual who earns $50 monthly finds it difficult to spend within the range of his income it certainly means there will be a need to go borrowing, which means debt.

Importance Financial Literacy

1. Financial literacy is important because it helps an individual to understand the difference between income and expenditure, thus being able to control and balance both ends.

2. It helps to avert bad decision-making that could lead to poor financial management.

3. The knowledge of financial literacy to a large degree can make an individual a professional in monetary fields and issues.

4. Because desires and wants are limitless, it becomes an option for every individual to understand how to manage the available income in other to satisfy at least 80% of those desires. Therefore, the best way to handle it is through financial literacy.

5. In times of inflation when prices of goods rise and most people’s daily income is unable to correspond with the increase. Financial literacy becomes helpful to manage available funds.

6. Financial literacy is so important in dealing with personal finance management, investing, and budgeting.

7. Financial literacy is so important because it can help individuals coordinate financial issues on a larger scale like in organizations and at the national level.

8. The knowledge of financial activities could help to bring back and stabilize a dwindling economy.

9. It helps an individual to become conscious of daily spending and plan for investing to accumulate more revenue.

10. It could help the individual discover issues that could lead to financial instability. Again, notice when his finance is nearing deficit and try to take action.


11. Having the required financial knowledge could empower us to create wealth and channel them appropriately.

12. It is so important in other to utilize various financial skills in different financial sub-fields.


Why financial literacy should be a basic knowledge

For every activity involving finance, which is the use of cash, the individual must gain basic financial knowledge. Basic knowledge is a fundamental skill that could help the individual in whatever area he finds financial opportunity.

An individual cannot boast of knowing monetary issues simply because he can add and subtract certain figures.

There is much more to understand than this. The need to balance income and expenditure without running into debt is important, and also become more calculative with figures and avert errors.

Other activities under finance that involves having financial literacy like investing, mortgage and budgeting

Financial literacy Vs personal finance

In as much as personal finance deals with an individual or household, it should not be looked upon as a mere insignificant. The reason why most wealthy people suddenly lose it all is because of the inability to manage available earnings.

For this reason, every individual needs financial literacy in other to maintain adequate financial status. Take for instance an individual who saves up a reasonable amount of money to start up a business without financial literacy the individual might end up losing it all.

Importance of Financial Literacy in various financial sectors

We have three sub-areas of finance and those areas directly need financial literacy to carry out their monetary functions. A lack of financial knowledge in any of these sectors could mean a decline in what is needful to do. Therefore, financial literacy has its significance as follows: 

1. Corporate finance

Financial literacy is important in corporate finance because it aids the process of decision-making. 

Financial literacy is important in other to understand various means of raising funds to increase a company’s value  

It helps to understand how possible it is to generate funds using the best method of investment.

It helps directors make decisions in the payment of shareholders’ dividends.

2. Public finance

Financial literacy is very important in public finance in the following ways

It helps to manage and coordinate the financial affairs of the country by avoiding the mismanagement of funds.

It could help to maintain the country’s economic growth, avoid inflation and create diversification in areas that it necessitates.

3. Personal Finance

It helps the individual or household in managing personal earnings. By creating, a budget that aligns with revenue and expenditure.

Financial literacy helps the individual to make wise decisions on how to achieve financial goals.

It helps the individual or household to avert debt and sort for other means of earning that can fill the gap of borrowing.  

The bottom line

It is not all about calculations, counting, and subtracting money, it goes beyond this.  Gaining financial literacy is an effective way of gaining insights into the financial world.

Every struggle is channeled towards acquiring funds that could solve immediate wants. For this reason, financial literacy is very important in every area of life.