Literacy levels globally have always been a worrying factor for government education systems. While education systems and funding are focused to improving general literacy we often find financial literacy, the understanding of financial knowledge and possession of a skill set that allows a person to make effective financial decisions, is lacking. While no formal education systems exist and with numerous opportunities for unscrupulous companies to take advantage of consumers, the average person in the street is generally unaware of how to organise their own finances effectively. It is exceedingly worrying in an age of debt that the rate of financial literacy is so low, but more worrying is the truth that those who are not financially educated are not actively seeking knowledge nor are they concerned about the lack knowledge or aware that it is an issue.
How much do we know?
For the majority of people, simply having a bank account where we can keep our money and an institution that we can borrow money from and pay back is the understanding that they have of finances. Respondents in Australia were questioned about compound interest and as many as 78% reported to understand the concept, but when faced with a simple equation using the knowledge, only 28% were able to complete the problem. In the same OECD study conducted in 2005, Korean students mostly failed an exam which tested their ability and understanding of managing personal finances, such as credit cards, retirement funds and personal loans. With stats as shocking as these, where can you find out more about financial literacy and what should you understand?
What do we do about it?
While most of us want to get in and out of banks as quickly as possible, speaking to your financial advisor is a quick and easy way to understand the basics of how they manage your money. Make sure that you speak to a consultant, understand what financial services you are paying for and whether or not you require all the facilities that you are paying for. When offered any type of credit, find out about multiple options for you to lend and varying methods and time frames of repayment that you can possibly take out. If you are looking to put money away for saving, speak to your advisor on the different options that you can have, for long term saving for your child’s education and future, through to short term access for that 3D TV you want for Christmas. Make sure you ask questions and actively seek to understand how your finances work and you’ll be well on your way to ensuring that you don’t get surprises and actually manage your finances, instead of letting them manage you.