Principles of Financial Literacy Paper

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Principles of Financial Literacy
Table of ContentsIntroduction......................................................................................................................................2Principles of financial literacy.........................................................................................................2Financial literacy initiatives & its impact........................................................................................5Conclusion.......................................................................................................................................7References........................................................................................................................................9
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.The inter-government programs were initiated by the organization for economic cooperation anddevelopment in the year 2003, and the objective of the program is to improve the financialknowledge and standard of literacy among the people through principles of financial literacy.The international gateway for financial education was launched by the organization for economiccooperation and development in the year 2008 with the objective to serve as a clearance housefor the financial education program and research across the worldwide. In the United Kingdom,it is recognized as the financial capability and the government has started national strategy onfinancial capability in the year 2003 (Fernandes et al., 2014). The government of the UnitedStates had also taken the initiative by established financial literacy and education commission inthe year 2003. According to the analysis of financial literacy by the international OECD study, itis found that there were only 67% of respondents have an understanding of compounded interest,but out of them, only 28 people are having a good understanding of compound interest (Jappelliet al., 2013). In the Canadian survey, it is considered by the respondents that the right investment
prediction is more difficult than selecting the dentist. In the survey of United States, it is foundthat the four out of ten people are not saving 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 specificfrom 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 theorganization for economic cooperation and development in order to improve the financialliteracy across the worldwide: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 the
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