The Importance of Financial Literacy in the Digital World

What is your current financial situation? Is it better than the past, and do you have reliable plans to do better in the future? Whatever the case, your past, current, and future financial situation depends on your financial literacy and how you leverage it in today’s digital world. Interestingly, digital technology can make it easier or harder to get and manage money.

So, what is financial literacy, and why is it important in today’s digital world? Let us explore the relationship between these two concepts.

What is Financial Literacy?

Financial literacy is a broad concept. It generally refers to understanding how money works and using it properly. More specifically, it covers financial aspects such as budgeting, investing, borrowing, taxation, and more. Beyond that, it teaches how to apply the knowledge to one’s benefit.

•       Budgeting: Budgeting addresses how you spend, invest, and save your money. A budget usually covers all income sources, fixed expenses (such as mortgage, rent, and utilities), non-essential expenses, and savings.
•       Borrowing: Borrowing money for personal or business use is inevitable at some point in everyone’s life. Additionally, it can help generate more money when used properly for business purposes. Borrowing usually addresses interest rates, payment periods, loan structures, and money’s time value.
•       Investing: Investing addresses how people can use money to make more money through passive or active investments. It discusses investment aspects such as interest rates, indexes, risk mitigations, and price levels. Common investment solutions covered in financial literacy basics include retirement funds, stocks, and commodities.
•       Taxation: Taxation discusses the various taxes, how they work, and their effects on your income and personal finances.
•       Personal Financial Management: Personal financial management covers the four factors listed above and more for a holistic approach to finances. For example, you learn how to increase savings and investments while reducing debt.

Overall, financial literacy is a crucial skill that one can rely on throughout their life. Fortunately, people in the UK can learn financial literacy in schools under the national curriculum for secondary schools. Despite that, the OECD still ranks financial literacy UK levels as average compared to 29 other developed countries.

Financial Literacy & Digital Technology

Digital technology is reshaping the financial landscape and influencing people’s financial decisions. Notably, virtually all banking services are now available online, making it easy to transact small or large sums of money. While convenient, this also poses a risk for people who don’t know how to manage their finances, as they can easily spend their money in unnecessary ways out of impulsiveness or when influenced by ads and societal expectations.

However, digital technology also offers many ideal opportunities to improve one’s financial literacy. It facilitates access to financial education content, including free articles, videos, and podcasts teaching financial literacy for beginners. Higher learning institutions also offer comprehensive financial literacy courses online.

Besides learning about how money works through articles and videos, the internet also offers access to rewarding investment information and opportunities. For example, people interested in investing in real estate can join online crowdfunding platforms and REITs (Real Estate Investment Trusts). However, thorough research and proper due diligence are crucial when considering online investment opportunities.

Last but not least, there are many digital tools designed to help you with financial activities like budgeting and saving. For example, certain mobile apps can help you determine your spending for varying periods, enabling you to identify non-essential expenditures. They can help you set a personalized budget to help you save more.

3 Crucial Benefits of Financial Literacy in a Digital World

The digital world has created many financial opportunities and risks. Financial literacy is essential for identifying and navigating the many financial opportunities and risks in today’s digital world. It can yield the following benefits and more when used properly:

1-      Leveraging Investment Information

Digital technology makes it easy to access financial and economic information in real time on a global scale. Information is the basis of all investment decisions. However, you need financial literacy to identify information that you can leverage to make rewarding investments.

You also need digital and financial literacy to interpret information correctly to make the right financial decisions. Interestingly, emerging financial technology products and services marketed by reputable fintech speakers are one of the most rewarding investment vehicles.

2-      Avoiding Financial Pitfalls

Digital technology can also lead to financial pitfalls in numerous ways. Ironically, the convenience of making quick and secure transactions also makes it easy to make bad spending and financial decisions.

For example, the ability to shop online can encourage impulsive spending decisions, especially with access to credit. Societal pressure from content on digital platforms such as social media can also lead to obsessive financial decisions. Fortunately, financial literacy makes it easy to identify and overcome any potential financial pitfalls.

3-      Financial Security & Prosperity

Money does, indeed, make the world go round. You need money to buy the most essential products and services, such as food, housing, clothing, medicine, and more. Financial constraints can, therefore, limit your overall quality of life. Unfortunately, financially illiterate people have less money and more debt than financially literate people.

In addition to financial security, financial literacy can also help you grow your wealth through saving and investing. That means you can be even more financially secure and enjoy the finer things in life.

Leverage Financial Literacy to Succeed in Today’s Digital World

Financial illiteracy has always resulted in money problems, even before the emergence of digital technology. Unfortunately, the effects of financial illiteracy are more profound today because of the far-reaching effects of digital technology.

In contrast, the rewards of being financially literate are bigger and better, also thanks to digital technology. You can leverage the ease of access to real-time information to make profitable investment decisions and avoid potential pitfalls. You can also use existing financial systems and digital tools for better personal financial management.

Leveraging digital technology properly can also help you improve your financial technology. You can learn about financial literacy via educational content on the internet. To this end, financial literacy and digital technology are intimately intertwined.