Financial literacy refers to understanding concepts like saving, investing, and retirement planning. It has gained attention globally since the financial crisis. India remains a high saver but financial literacy was a factor in the crisis. Financial literacy involves understanding financial products and having skills to make informed financial decisions to improve well-being. It is the result of personal financial planning, which is managing money to meet life goals through proper financial management.
Financial literacy refers to understanding concepts like saving, investing, and retirement planning. It has gained attention globally since the financial crisis. India remains a high saver but financial literacy was a factor in the crisis. Financial literacy involves understanding financial products and having skills to make informed financial decisions to improve well-being. It is the result of personal financial planning, which is managing money to meet life goals through proper financial management.
Financial literacy refers to understanding concepts like saving, investing, and retirement planning. It has gained attention globally since the financial crisis. India remains a high saver but financial literacy was a factor in the crisis. Financial literacy involves understanding financial products and having skills to make informed financial decisions to improve well-being. It is the result of personal financial planning, which is managing money to meet life goals through proper financial management.
Financial literacy refers to understanding concepts like saving, investing, and retirement planning. It has gained attention globally since the financial crisis. India remains a high saver but financial literacy was a factor in the crisis. Financial literacy involves understanding financial products and having skills to make informed financial decisions to improve well-being. It is the result of personal financial planning, which is managing money to meet life goals through proper financial management.
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Financial Literacy:
Financial literacy the term is strongly associated with the
concept saving, investment, financial services and retirement planning in most of the countries of the globe.
Urge for financial literacy has gained the attention of
wide range of entities like financial services, organization, community interest groups and education institutes in recent years in developed as well as developing countries after the global financial crisis.
India continues to remain one of the highest savers
among the emerging market economies and Gross Domestic Savings (GDS) of the nation constitutes 33.7% of total National Gross Domestic Product (GDP).
Financial literacy was one of the reason for crisis
Apart from thisIncreased risk in financial products
Low return from financial markets Change in pension landscape
Financial Literacy and Personal finance:
The processes, by which financial consumers/investors
improve their understanding of financial products and concepts and, through information, instruction and/or objective advice, develop the skills and confidence to become more aware of financial risks and opportunities, to make informed choices, to know where to go for help, and to take other effective actions to improve their financial wellbeing. OECD, (2005, 13)
Chapter: 1 Personal Finance Basics and the Time Value of Money
Topic Covered-
(I)
(II) (III)
Awareness about the element of
Personal finance Setting of Personal Financial goals Time Value of money
Learning Objectives-
(I)
(II) (III) (IV)
(V)
Analyse process for personal financial
decisions Develop personal finance goals Assess personal and economic factors Determine personal and financial opportunity cost Identify strategies for achieving personal finance goals
Concept: Personal Financial Planning: Personal Financial Planning is a process of managing money to achieve personal economic satisfaction. Personal financial planning denotes the process of determining whether and how an individual can meet life goals through the proper management of financial sources (CFP Board, 2005). Personal Financial Planning (PFP) is the result of financial literacy.
Advantages of personal financial planning:
Increase effectiveness in obtaining, using protecting your financial resources.
and
Increase control of your financial affairs.
Improve personal relationships. A sense of freedom from financial obtained by looking to the future.
worries
1) 2) 3) 4) 5) 6)
The Financial Planning Process
Determine your current financial situation. Develop your financial goals. Identify alternative courses of action. Evaluate your alternatives. Create and implement your financial action plan. Review and revise your plan.
Consequences of Choices: Opportunity Cost
Opportunity
cost - What you give up when you
make a choice
The
cost, or trade-of of a decision, cannot always
be measured in rupees. Sometimes the cost is your time.
Every Financial Decision Involves Evaluating
Types of Risk:
Inflation risk Rising prices cause lost buying power.
Interest-rate risk Effect costs of borrowing and rate of return.
Income risk The loss of a job.
Personal risk Health, safety, or costs.
Liquidity risk Higher return may mean less liquidity .
Financial Planning Information Sources:
Printed materials. Financial institutions. School courses and educational seminars. The internet, online sources, computer software. Financial specialists. Financial planners, bankers, accountants, insurance agents, lawyers and tax preparers.
Developing Personal Financial Goals
Financial goals include those...
Influenced by the time frame in which you want to achieve your goals. 1. Short-term 2. Intermediate 3. Long-term Influenced by the financial need that drives your goals. 4. Consumer product 5. Durable product
Goal-Setting Guidelines: Goals must be SMART Goals Goals Goals Goals Goals
should should should should should
be stated in Specific terms
be Measurable indicate the Action to be taken be Realistic have a Time frame
Influences on Personal Financial Planning
Life situation and personal values
Adult life cycle stage.
Marital status, household size, and employment. Major events. Graduation, marriage, children, retirement, etc. Values. What values are important to you?
Economic
Factors
Global influences
Changing Economic Conditions
Consumer The value of the dollar prices changes in inflation. Consumer spending
The demand for goods
and services by individuals and households.
Interest rates
The cost of money; cost of
credit when you borrow; return on your money when you save or invest.
Money Supply The dollars available for
spending in our economy. Unemployment The number of individuals without employment who are willing and able to work. Housing starts Number of new homes being built.
GDP: Gross Total value of goods and Domestic Product services produced in a country. Trade balance Difference between a countrys exports and imports. Market indexes The relative value of stocks as represented by the index, such as the Dow Jones Average or the S&P 500.
Developing a Flexible Financial Plan
A financial plan is a formalized report that...
Summarizes your current financial situation. Analyzes your financial needs. Recommends future financial activities.
Your financial plan can be created by you, with
assistance from a financial planner, or made using a money management software package.
stay within your income, while allowing you to save and invest for the future. Have appropriate insurance protection to prevent financial disasters. Become informed about tax and investment alternatives. Study personal finance.
Achieving your financial objectives requires two
things. A willingness to learn. Appropriate information sources.
