Financial literacy: how to handle your finances?

What is financial literacy?

Financial Literacy is the foundation for a secure and prosperous future. It encompasses the knowledge, skills, and understanding required to make informed financial decisions and effectively manage your finances throughout various life circumstances. It empowers individuals to make responsible financial choices, secure their financial well-being, and achieve their financial goals.At its core, financial literacy involves: understanding financial concepts, developing financial skills and making informed financial decisions. 

Why is financial literacy so important?

In today's world, financial literacy is considered one of the fundamental life skills. It is a crucial aspect of personal growth and development, empowering individuals to make informed financial decisions, manage their finances effectively, and achieve their financial goals. Financial literacy is not limited to a specific group or demographic; it applies to everyone, from young schoolchildren to working parents. It is a topic that transcends age, gender, family status, and educational background. Since money plays a significant role in everyday life, we are all, in some way, financial consumers who utilize finances to navigate society.

When discussing financial literacy, the concept of financial literacy levels often arises. This phenomenon is closely linked to the overall educational process and the level of mathematical or reading literacy. Today, we recognize that general education, exposure to various topics through reading, and even engaging in basic mathematical puzzles can contribute to understanding the world of finance.

What is the National Standard of Financial literacy?

The Slovak Republic recognizes the importance of financial literacy in empowering individuals to make informed financial decisions and achieve financial well-being. To address this critical need, the country has established the National Standard for Financial Literacy (NŠFG) as a framework for incorporating financial education into the national curriculum.

To ensure comprehensive and effective financial education, the NŠFG is structured around six core themes:

• Consumer financial responsibility: the theme encompasses the knowledge, skills, and practices that individuals employ to make informed financial decisions, protect their financial well-being, and navigate the financial landscape with prudence. It empowers consumers to become active participants in managing their finances, making responsible choices, and safeguarding their financial interests.

• Planning, income, and work: the theme delves into the intricate relationship between personal and societal needs and the role of finances in fulfilling those needs.

• Consumer decision-making and budgeting: the theme emphasizes the importance of personal financial responsibility and the role of informed decision-making in achieving financial well-being.

• Credit and debt: the theme delves into the complexities of borrowing, understanding financial obligations, and managing debt effectively.

• Saving and investing: the theme introduces students to the fundamental concepts of financial planning, emphasizing the importance of saving and investing for a secure and prosperous future.

• Risk management and insurance: the theme delves into the complexities of financial risks, exploring strategies for mitigating those risks and the role of insurance as a financial protection mechanism.

How to improve financial literacy?

The ability to make sound financial decisions is a cornerstone of financial well-being and a skill that requires a combination of habits, knowledge, and experience. To truly understand the world of finance and make informed choices, individuals, including future generations, must go beyond grasping basic concepts like bank accounts, credit, and savings deposits. They need to develop a comprehensive understanding of the financial landscape, encompassing areas such as: the labor market and income security; asset protection and insurance; savings, investing, and Wealth Management; long-term planning and retirement security. By cultivating a strong foundation of financial knowledge and developing sound financial habits, individuals can secure their financial well-being, protect their assets, and pave the way for a prosperous future.

In the ever-evolving world of finance, it is crucial to cultivate a mindset of continuous learning and engagement. Regardless of your age or financial background, there is always room to expand your financial knowledge and refine your financial skills.

Financial literacy is a crucial life skill that empowers individuals to make informed financial decisions and achieve financial well-being. While formal education plays a significant role, practical experiences and parental guidance are equally important in developing financial literacy in children. They learn best through hands-on experiences and real-world applications. Incorporating financial concepts into everyday activities can effectively instill financial literacy in children through some effective strategies such as giving them allowance and pocket money and involving them in financial matters. At VÚB Bank, we believe that: "what our offspring learn about money in childhood, they will find as if on their account in adulthood." Recognizing the importance of financial literacy in shaping a child's financial future, we are committed to providing tools and resources, Junior banking, that empower parents and educators to instill financial savviness in young minds.

Why financial planning enhances financial management?

Financial planning is a comprehensive process that involves analyzing your financial situation, setting goals, developing strategies, and implementing actions to achieve those goals. It is an essential tool for individuals and families seeking to take control of their finances, secure their financial future, and achieve financial well-being. 

Financial planning is a journey, not a destination. It requires ongoing effort, discipline, and a willingness to adapt to changing circumstances. By embracing financial planning and cultivating financial literacy, you can take control of your finances, achieve your financial goals, and secure a prosperous future for yourself and your family.