The Importance Of Financial Literacy

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Financial literacy is a basic need for everyone to financial constraints. According to Rashid (2012), financial constraints can cause stress and low self-esteem. It is obvious that if an individual is experiencing many financial constraints, it affects the financial behavior of an individual and many financial risks will occur. Financial Literacy is a person’s ability to manage his money and is essential to being successful in life. The importance of developing good financial habits as early as possible is essential because the spending habits and financial management capabilities in these years will determine how we are most likely to manage our own finances for the rest of our lives. According to Dwiastanti, (2015) on Financial Literacy…show more content…
Therefore, financial education is the operation by which people enhance their comprehension of financial products, services, etc. to become more conscious of risk and return, so they are empowered to make informed decisions, to elude undesirable result, or to recognize where to bear for assistance, and take other measures to refine their present and long- term financial well-being (PACFL, 2008). Greater financial literacy, together with financial education, can reduce the probability that customers at any income level will not buy products or services that are unnecessary or that are not in their personal interest. Hence, financially competent consumers are more likely to save their money, compare financial products and services, and debate daily financial routines with their…show more content…
Remund (2010) suggested that financial literacy has a relationship with a person’s competency for managing money. Financial literacy is a measure of the degree to which one understands key financial concepts and possesses the ability and confidence to manage personal finances through appropriate short- term decision-making and sound, long-range financial planning, while mindful of life events and changing economic conditions. (Remund, 2010) “Though conceptually, financial literacy refers to skills, existing measures of financial literacy are dominated by measures of objective knowledge. Financial literacy is measured by percent correct on knowledge tests where each question has a right answer” (Fernandes, Lynch, and Netemeyer, 2014) “This is one of the many definitions of what financial literacy is but this definition captures the meaning very well. This study implies that financial literacy can be applied to one’s actions towards decisions that involve finances and financial literacy can also be in relation to one’s knowledge on finance intellectually.” A good financial literacy is necessary for every individual to manage his/her finances to achieve prosperity. To have a good level of financial literacy, individuals need to have a smart financial behavior to make them

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