Paper on Principles of Financial Literacy

Added on - 19 Sep 2019

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Principles of Financial Literacy
Table of ContentsIntroduction......................................................................................................................................2Principles of financial literacy.........................................................................................................21.Budgeting & financial planning...............................................................................................62.Key Differences........................................................................................................................83.Risk management.....................................................................................................................94.Importance of considering superannuation............................................................................105.Importance of power if attorney and valid will......................................................................11Financial literacy initiatives & its impact......................................................................................12Conclusion.....................................................................................................................................13References......................................................................................................................................15
IntroductionIn this present paper, we will discuss the principles of financial literacy. The financial literacy isdefined as the ability to understand the working of money in the world. It includes the managingof income of an individual in order to generate higher returns within the particular period oftime. It also comprised the skills and knowledge of an individual who helps to take an effectivedecision regarding the utilization of financial resources. The short-term programs are focusing onraising interest in personal finance in various countries such as Japan, United States, Australiaand the United Kingdom.In the United Kingdom, it is recognized as the financial capability and the government hasstarted national strategy on financial capability in the year 2003 (Fernandes et al., 2014). Thegovernment of the United States had also taken the initiative by established financial literacy andeducation commission in the year 2003. According to the analysis of financial literacy by theinternational OECD study, it is found that there were only 67% of respondents have anunderstanding of compounded interest, but out of them, only 28 people are having a goodunderstanding of compound interest (Jappelli et al., 2013). In the Canadian survey, it isconsidered by the respondents that the right investment prediction is more difficult than selectingthe dentist. In the survey of United States, it is found that the four out of ten people are notsaving for their retirement.Principles of financial literacyIn the recent years, the concerned regarding the financial literacy have been improved across theworldwide in order to enhance the financial knowledge of people. It has stemmed in the specific
from public to private support system through shifting the demographic files which comprise ofaging of population and development in the wide range in the financial market. The concern washighlighted mainly due to the financial and economic challenges which recognize the lack offinancial literacy and it contributes towards the ill financial decision making of people (Lusardiet al., 2014).Following are the seven principles of financial literacy which are developed by the organizationfor economic cooperation and development in order to improve the financial literacy across theworldwide:1.Financial educationThe aim of the financial education principle is to improve the knowledge related to thefinancial products, risk, concept, information and objective advice in order to improve thedecision making of an individual which enables to enhance the financial wellbeing ofpeople. The financial education is beyond the provision of financial advice andinformation which should be regulated in order to improve the decision making of anindividual and protect the financials of clients.2.Financial capacity buildingAnother principle of financial literacy is to build the financial capacity through thefinancial information and instruction which should be promoted in order to achieve theobjective of principles. The financial education should be providing in an unbiasedmanner and fair in order to improve the knowledge of people. The various programsshould be coordinated in order to develop the efficiency among the people.3.Financial education program
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