FINANCIAL EDUCATION: WHAT IT IS AND HOW IT CAN HELP

But what is financial education?

Surely, you’ve heard this term somewhere, whether in the newspaper or even browsing the Internet. Do you know what it means? OECD governments recognized in 2002 the importance of financial education and they defined the term as: “(…) the combination of awareness, knowledge, skills, attitude and behavior necessary to make sound financial decisions.

Thus, financial education involves organizing finances, knowing your earnings and expenses, planning accounts and thinking about the future. Ultimately, it can be said that it is the ability to understand how your money works within your budget.

The four skills of financial education

As you may have noticed, financial education is a broad term that encompasses a range of knowledge and skills. However, we can mention four of them that are essential:

• Budget: it’s the planning part, knowing your finances. In a simple way, it is the schedule or layout of expenses and earnings in a month or week;
• Finance management: It is not possible to do good finance management without the previous skill. Finance management consists of saving and investing resources in a way that they remain safe;
• Investment: a person who has a good budget and good financial management is able to invest correctly. It could be in bonds or stocks, in the real estate market or even in a venture;
• Credit: many have heard that credit is the enemy of any budget. However, the only thing you must have is prudence and responsibility when using lines of credit. Anyway, they can be used.

The importance of financial education

As the OECD definition itself says, financial education is important to achieve financial well-being. We can then understand that it is crucial to be able to control your budget, make your money go further and, consequently, achieve your dreams.

Since money is finite, it needs to be well managed. Good management allows you to make sound financial decisions and achieve your goals without acquiring exorbitant debt. Your goal may be to buy a car, a property or open a business: it doesn’t matter. Financial planning will need to happen to increase the chances of success.

It is obvious that there are other factors that also interfere with the ability of individuals to manage their expenses, for example the economic recession we are experiencing. However, having a good financial education serves precisely to be able to deal with these crises and economic difficulties. After all, one of its pillars is to create a “lifeboat” for unexpected situations. Here, we are not just talking about times of economic crisis or unemployment. An unexpected situation could be a medical emergency or a broken refrigerator, for example.

Financial education in the pandemic context

In the current context of the coronavirus pandemic, many families and individuals have been exposed to an enormous degree of uncertainty and financial insecurity. There is a fear of unemployment, a decrease in income and even possible medical expenses in case of contracting the disease.

So right now it’s crucial to have a good finance organization. Even better when the four skills mentioned above were already being executed, especially finance and investment management. After all, having an emergency reserve would help you get through this moment more smoothly.

How to cultivate financial education in my life?

From the overview we present, you must have realized that applying financial education to your personal accounts is important and brings many benefits. So let’s offer some tips so you can start organizing your savings. Check out:

Outline your earnings and expenses

This should be the first step in any financial organization move. You need to know your situation to start acting. For this, it is necessary to outline your earnings and expenses during the month or week. It can be through a spreadsheet or other artifice that you see fit. The important thing is that the information is clear and easy to analyze.

Use a document organizer

It sounds like a silly tip, but document organization is part of the effort to maintain good personal finance health. Many bills still arrive in printed versions and losing them around the house is a common situation. With a document organizer, you can keep them in a safe place and not forget the payment date.

settle your debts

Secondly, an important step in the organization of accounts is the discharge of debts, especially overdue ones. Outline all overdue debts, whether with cards, banks or other services, including interest rates. In addition, define what the payment priorities will be and contact the institutions for possible negotiations.

set goals

The trajectory of financial education is not as simple as it seems and there will be moments of difficult choices. In these situations, it is common for many to give up organizing accounts. Especially if they were in the beginning. Therefore, a tip to maintain motivation and purpose during the process is to set goals. They can be a trip to Paris on vacation or a new car, something you want and you can only get by controlling your budget.