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Financial literacy is a life skill which has not been spotlighted till now. As per the survey * conducted by SEBI, about 27% of India’s population is financially literate. From the numbers, it is apparent that there is a lack of institutional rigour in India towards financial literacy. Here we try to bring to the forefront the importance of financial literacy and the core concepts of finances and investments.    

What is financial literacy?

Financial literacy is the ability to:

• Understand and manage your financial resources effectively

• Establish financial stability for a peaceful and stress-free life

• Plan and achieve your key financial milestones

Why is financial literacy important for you?

This is one of the core life skills that need to be inculcated early on in life. Financial literacy is essential as:

• It provides knowledge and awareness about core money management, which helps you manage your day-to-day life in a financially efficient manner.

• Provides you with the lifelong gauge to invest in a smart manner and achieve optimal returns at acceptable levels of risk.

• Enables you to achieve financial stability for life.

• Ensures that you avoid financial pitfalls such as debt trap, overspending, poor savings etc.

• Managing your finances is a transformative skill which can bring a wave of change over the next generations.

Top 5 pillars to know:

Insurance: 

Hedging your life and health risk is an important aspect of a stress-free life. The pandemic has reiterated the importance of having sufficient life and health insurance. Insurance is the weapon to combat unfavourable events in your life. It is an effective means to avoid financially stressful circumstances. 

Investments: 

Financial literacy starts with budgeting and saving, which eventually brings us to effectively invest the amount saved to achieve optimal returns. It is increasingly important to invest appropriately to ensure that you are able to realise your financial dreams without any stress. Financial literacy will help you invest prudently regardless of your financial status and age. 

Estate Planning: 

Estate planning and succession planning in India is still a factor that is known and discussed among the elite in India. Registering a will may not be a mandate and hence is not considered important. However, it is an added layer of security for your family. In the event of an unforeseen event, this would come very handy.

Tax Planning: 

Just like small drops make the ocean. Tax planning may seem trivial. However, it can add to our long-term wealth creation agenda. You can save up to Rs. 45,000 with section 80C alone, a maximum of Rs. 1.5 lakh can be invested in tax-saving investments if you are in the highest tax bracket.

Retirement Planning: 

Retirement planning is an extensive task of determining the quantum of funds required post-retirement to manage your household requirement and lifestyle. There is no one plan that fits all. You need to customise your retirement plan to suit your needs. It is imperative to note that the earlier you start, the higher will be the corpus you build. The magic of compounding tends to unfold over the long haul. 

This International Literacy Day, let us pledge to become financially literate over time by reading and implementing healthy financial practices.