Personal Financial Literacy
Concept
Financial literacy can be defined as possessing understanding of how
money works in the world, teaching critical skills to individuals on how
to make informed, effective financial decisions grounded on their
resources and situations.
Investopedia define financial literacy as “the education and
understanding of various financial areas including topics related to
managing personal finance, money and investing. These topics focus on
the ability to manage personal finances matters in an efficient manner,
and include the knowledge of making personal finances such as investing,
insurance, real estate, paying for college, budgeting, retirement and
tax planning”.
Personal financial literacy is knowledge, skills, attitudes and behavior
individuals need to acquire, preferably from young age, to be able to
use and control personal finances
responsibly. The concept my entail investment decisions, real estate,
funds for studies, budgeting and planning to mention a few but it can
also extend to the related transactional details such as legal
knowledge, the use of technology , micro and macroeconomic issues.
(Atkinson & Messy, 2012) define financial literacy as ‘a combination of
awareness, knowledge, skill, attitude and behavior necessary to make
sound financial decisions and ultimately achieve individual financial
wellbeing. And of more related concept is financial education which is
defined as “the process by which financial consumers/investors improve
their understanding of financial products and concepts and, through
information, instructions and/or objective advice, develop the skills
and confidence to become 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 well-being and protection”
(OECD, 2005).