Two factors in the status quo have increased the level of complexity about financial decision-making: the diverse nature of products and instability within the global economy.
Large trading volume, as well as policy-change fiscal diversity, has affected the financial decision-making of not only investors but also those of the general masses.
So to consolidate the factors of fiscal well-being, socio-economic and demographic variables, the ideal solution lies in financial literacy.
Financial literacy serves as a totalitarian solution for financial wellbeing on numerous accounts. Even for those who are veterans in the market, new models and trends keep on emerging, highlighting the need for adequate literacy.
The need for financial literacy
Consider technology-mediated changes in the finance arena such as cloud accountancy and crowdfunding. Then there are legislative updates such as the ‘liberal productivist model’ arising since the recession that demand updated knowledge.
In research done on areas such as the finance market and personal finance, it has been reported that this fiscal knowledge leads to reduction of financial problems as well as improvement in the person’s resource management for the enterprise he/she is working for.
Scaling financial literacy
The application zone is not merely limited to making investments, but also to specific financial products such as insurance. In light of the recent implementation of the Affordable Care Act in America, a prior study was done correlating financial literacy with the consumer choice of health insurance.
An important inference made by the study was that the illiteracy about financial products led to either poor decision-making about coverage or led to consumers choosing cost-expensive plans.
Financial literacy works well when both the state and the individual/enterprise are working in the cohort. Resource generation and utilization are two important parameters in this regard.
Jonathan Fritz of simplifiedissuelifeinsurance.com provides a good account of initiatives taken at the enterprise level. Insurance-related products have diversified in part due to the recession but also because there is more concern over fiscal security. The financial literacy guide provides the user with a good account of all the products as well as their market relevance, thereby allowing for better decision-making.
On a macro level, financial literacy serves as a quantitative tool for determining financial wellbeing. In the status quo, wellbeing is normally associated with factors such as consumption of goods, net worth, savings, socio-economic status, land ownership, etc- all of which are linked to financial literacy.
Since the recession, the microfinance model is gaining traction within the U.S. As per Dr. Muhammad Yunus, the Noble Prize winner, microfinance leads to self-employment which inherently generates fiscal security within the society. A successful microfinance model is dependent on the level of financial knowledge among the people. So instead of modern market indicators, the functionality of literacy is paramount.
Also, in a report published by the Consumer Financial Protection Bureau (CFPB), a large amount of money is being spent by enterprises on financial marketing as compared to that on financial literacy. So the consumer is more privy to biased financial information leading to biased fiscal decisions. This can be curtailed if the consumer takes the initiative of acquainting themselves with the necessary knowledge.
Based on the narrative given above, the case of financial literacy is fairly documented and should be used by consumers for their benefit.
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