Financial literacy is a skill that every one of us should learn. It helps a lot to manage our expenses and earnings in such a way so as to invest them in building our future or the future of our dependants. In this essay on financial literacy for middle school students, we will be going through all the important headings under the title ‘Financial Literacy’.
Introduction – What is Financial Literacy?
Financial literacy is a skill that teaches us to effectively manage your finances. It basically refers to managing our savings and earnings effectively in the best possible way with the intention of preserving it or making it grow. The more financially literate we are, the more financially independent and secure our future would be. Read on this essay on financial literacy for middle school students.
Core Components of Financial Literacy
The five core components of financial literacy are – earning, saving & investing, spending, borrowing and protecting. We shall go through each one of them briefly below –
Earning means bringing money home in form of salary, business gain or returns on other investments. This is where the need for financial literacy arises. When a certain amount of income is generated, it is very natural that the income holder would keep aside a portion of it to meet his/her miscellaneous expenses and save the remaining amount for the future.
Saving & Investing
Now that you have got your earnings and paid all the bills, it is natural that you would like to save the remaining money for future needs or emergencies. You have two options – either you can leave your savings in your bank account or reinvest it. If you chose to leave it in your bank account, it would just lie there for years, getting you interest at a meager rate of 4%; hardly any gain. On the other hand, if you are financially literate, you would be capable of identifying so many other much profitable investment options available like – mutual fund, stock market, debentures, etc. A well tailored investment plan in any of these can significantly improve your wealth in future.
Spending is also a very important component of financial literacy. Being financially literate means you should be able to differentiate between needful expenditure and needless expenditure. If you cut down your spending on useless things, you would be saving a great deal of money for your future. Only if you control your spending that you would be able to save considerably and reinvest.
‘Borrowing’ refers to acquiring debt with the purpose of growing assets. Businesses borrow loans from banks in order to expand themselves, increase production, acquire land for office, factories etc. Students also take education loans for higher studies or to study abroad. Both businesses and students have future plans for the repayment of the debts. Businesses intend to do it by utilizing the debt in such a way so as to increase their revenue, while the students plan to utilize the study loan for higher education and then get employed to pay the debt. Borrowing is neither bad nor unusual; nevertheless, it must be done with a well crafted plan in mind.
This component of financial literacy deals with making yourself financially protected. One should have enough savings to deal with medical and social emergencies or plans. Financial priorities change at different stages of life as well as the needs. The Father of a young child should worry about making his son/daughter’s education financially protected once they acquire teenager. Similarly, one should also make financial decisions by keeping in mind the needs after retirement.
Importance of Financial Literacy for the Students
Many may be of the opinion that financial literacy is not for the children and it is only the domain of adults. I chose to differ – financial literacy is a necessary life skill and the early it is learned the better.
Students who are taught financial literacy become more responsible towards their expenditures. It brings on a sense of financial responsibility on them and they tend not to overspend or spend on unnecessary things.
As they grow up they learn several ways by which they can let their wealth grow, and use it appropriately for a secured life.
How to become Financially Literate?
There are some easy ways to make you financially literate. I have summed up some most important of them below-
Pick a book that teaches you the basic of finance and suggests how and where to spend your money.
Check out the internet – there is lot of good content out there on how much and where to invest.
Stay updated on Tax Rules and Interest Rates offered.
Identify your future goals and according plan your finances.(You can take help of your teachers and parents)
Financial literacy is a must be acquired skill for a secured life and successful career. Like all the other subjects taught at the school level, it is also very important to teach finance-related subjects, if we want our children to be wiser than us in terms of money management and wealth gain.
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