Finance and its management are a vital part of personal and business life. This aspect of life must not be ignored, as it is deeply ingrained in almost everything around us. Recent developments have made financial education and awareness increasingly important for financial well-being.
The growing sophistication of financial markets means that consumers are being overwhelmed with the choices available. Instead of choosing between two different interest rates on bank loans or savings plans, consumers are faced with a variety of complex financial instruments for borrowing and saving. At the same time, responsibility and risk for financial decisions that will have a major impact on one’s future is increasingly being shifted to the workers.
Not everybody is capable of choosing the right savings or investments for themselves and may be at risk of fraud, especially those who are not financially literate. Those who become more financially educated are more likely to be able to save and find the best financial service providers that are able to respond to their needs. Financial literacy is also crucial to help ensure consumers save enough to provide an adequate income in retirement while avoiding high levels of debt that might result in bankruptcy and foreclosures.
One key element of financial education is providing it in schools to ensure everybody has a basic understanding of personal finances early in life to successfully manage their finances throughout. Financial literacy programmes must have guidelines in place to prevent abuse from financial institutions, such as financial management programmes being clearly distinguished from commercial advice.
Although financial education is important, it is only one pillar of an adequate financial policy to improve financial literacy and access to financial services. Financial education can complement, but can never replace, other aspects of successful financial policy such as consumer protection and the regulation of financial institutions.