If you were asked to define financial literacy, how would you explain it? Would you say that it is being totally aware and in control of every aspect of your finances? That is basically it but it can be difficult for people to get their heads around all the financial terms and knowing exactly what their money is doing, where it’s going and why.
One of the big aspects of financial literacy is being able to define the difference between things such as good or bad debts. Many of us are probably aware of what would be considered as good debts and what would be considered as bad debts.
Research recently undertaken at Wonga surveyed over 18,000 of their South African customers in a mission to find out their customers financial understanding. When it came to good debts such as buying a house or furthering education, 83.7% of people would take out credit for a house and 58.6% would do the same for further education. This is understandable as people know that they will benefit themselves and their families for a long, long time.
5% of those polled, however, would take out credit for a holiday and 4.5% of people would take out credit for gadgets and fashion. Many people are probably guilty of using credit on these short term pleasures occasionally but it is important to not make this a regular occurrence. With thousands of their customers showing themselves to not be as financially literate as they could be, it is interesting to see if this failure to be financially literate is as common across the world – in fact, articles from newspapers in the UK show that millions of Britons are financially illiterate, showing this to be a common problem across the world.
So what should we consider to become financially literate? Learn exactly where your money is going and when. Learn when it’s coming in. Try to use existing savings for items but if really needing to take out credit, consider these three important points.
- What is the credit for?
- Can you afford it? Whether from existing savings or paying back a credit agreement.
- What will it cost you overall?
What is the credit for? Is it for something that will benefit in the long term – a family home that will be lived in for many years or perhaps further education in the hope of chasing your dream career? Can you afford to repay the credit once it has been taken out? Is it going to lead you into further financial hardship or is it achievable? What will the overall cost be – once interest rates have been considered and added on, is the repayment still achievable?
Financial education is something we should all be able to learn as research shows that it isn’t just South African Wonga SA customers who aren’t as financially literate as they should be. It is important to be as clued up on your own finances as possible to avoid bad financial decisions in the future.