Whether we would like to admit it or not, a huge chunk of our life revolves around earning and managing finances. So, it goes without saying that financial literacy is something that we should not take lightly.
We have to make so many decisions throughout our life regarding finances and so being literate in this particular niche is the only weapon in your arsenal to make sure you end-up taking sound decision. Not just that, it’s the only way to discern whether or not someone is giving sound advice or simply trying to scam you.
Take a look at the benefits of financial literacy education –
You know the difference between asset and liability
You may think you already know the difference, but believe it, most people don’t. For example, it’s common to think that your house is an asset when in fact it’s not. Here’s why – it’s not helping you earn any money. If anything, it’s only draining you off of it. Taxes, mortgages, what not! You have to pay these things.
A rental property on the other hand is putting money in pocket. So, there you have a true asset. Financial knowledge and literacy helps you understand such difference. With that knowledge, you know whether you’re being offered sound financial advice and whether or not you actually stand to make anything out of it.
You know the difference between good debt vs. bad debt
Not all debt is bad. Most financial advisors are seen advising people to avoid the debt. But, they won’t tell you to avoid the bad ones. And, it’s easy to start to blindly follow any advice if you don’t understand such nitty-gritties.
Examples of bad debt would be going on vacations or buying luxury items using credit cards. But, using bank’s money to buy a rental property is actually the good kind of debt. You are not using your money to invest in the property and the rent you will receive each month will easily make up for the debt.
The same goes with taxation. Smart investors who are well-educated financially know that government offers relaxation on various investments. For example, anything related to oil exploration, affordable housing, etc. are the areas where government cuts back on taxation.
Financial education tells you how you can use the taxation policies in your favor and how to avoid the bad debt and use good debt to your financial advantage.
It enables you to make your own financial decisions
There’s no such thing as a tough or easy question. Either you know the answer or you don’t. When you know the answer, question seems easy and if you don’t, it’s challenging. The same goes for making financial decisions. If you know what hand you’re being dealt with, you make good decision. Otherwise, you rely on outside help for making financial decision. And as long as you rely on somebody else, you can never be fully sure of whether you’re being offered good advice or bad.
Therefore, do make it a point to stay abreast with the latest goings on of the financial market and keep reading finance related stuff to increase your knowledgebase.