Marketing Financial Literacy & Savings – BMS Notes

Financial Literacy

• Financial literacy is the confluence of financial, Credit and debt management, as well as the information required to make prudent financial decisions—decisions that are essential to our day-to-day existence. Understanding how a bank account operates, the true implications of using a credit card, and debt avoidance are all part of financial literacy. All things considered, financial literacy affects the day-to-day struggles that a typical family has while attempting to manage their finances, purchase a house, pay for their children’s education, and secure a retirement income.
• The issue of inadequate financial literacy is not limited to poor or rising nations. Additionally, consumers in industrialised or advanced countries do not have a solid enough understanding of financial concepts to navigate the financial environment, successfully manage financial risks, and steer clear of financial hazards. Countries all throughout the world, including Germany, Australia, and Korea, deal with populations whose citizens lack fundamental financial literacy.
• The degree of financial literacy varies with education and income, although research indicates that well-educated and wealthy consumers may not know as much about money matters as less-educated and poorer customers (though in general, the later do tend to be less financially literate). Customers seem to be reluctant to learn, too. In a poll performed in Canada, the Organization for Economic Co-operation and Development (OECD) reported that selecting the appropriate investment for a retirement savings plan caused more stress than a trip to the dentist.
• A decline in financial literacy
• Most everyday transactions made in the past were made with cash; nowadays, they seldom ever flaunt it, especially younger consumers. Our purchasing habits have also evolved. Many people now find that purchasing online is the best option, which makes it simple to use credit excessively and quickly rack up debt.
• In the meanwhile, customers are being inundated with credit chances by banks, credit card firms, and other financial entities. the capacity to apply for credit cards or balance transfers across cards; without the right information or checks and balances, it is simple to get into financial difficulties.
• For a very long time, many customers have had very little knowledge about money, credit, and how it may affect their financial security. In reality, one of the primary causes of the difficulties that many Americans have with saving and investing is a lack of financial knowledge.
• Every few years, as part of its National Financial Capability Study, the financial and banking regulator FINRA administers a five-question exam to consumers to gauge their understanding of interest rates, compound interest, inflation, diversification, and bond prices. The fact that just 34% of test takers correctly answered four out of five questions indicates that the fundamental financial and economic ideas behind these issues are pervasive and affect all 50 states in various ways.
• Trends Increasing the Significance of Financial Literacy
• It seems that customers are having an increasingly difficult time making financial decisions, which exacerbates the issues brought on by financial illiteracy. Converging five themes highlight how important it is to make deliberate and well-informed financial decisions:
• Consumers are making more financial choices for themselves.
• One illustration of this change is the preparing for retirement. Prior generations’ primary source of retirement income was provided by pension programmes. Professionally run pension plans place the financial strain on the governments or businesses who provided them. Customers were seldom informed of the financial situation or investments held by the pension, they were not engaged in the decision-making process, and they usually did not even contribute their own money. Pensions are less common than they formerly were, particularly for recent hires. Instead, 401(k) plans are being made available to workers, whereby they will have to choose which investments to make and how much to contribute.
• intricate choices
• Additionally, consumers are prompted to choose from a range of savings and investing options. These products are more advanced than in the past, requiring users to choose from a range of alternatives with various maturities and interest rates—decisions they lack the necessary knowledge to make. The temptation to make decisions is increased when choosing intricate financial products with many of possibilities since doing so may affect the consumer’s capacity to fund schooling, save for retirement, or purchase a house.
• Absence of government assistance
• Social Security was a significant source of retirement income for previous generations. However, Social Security does not pay enough, and in the future, it could not pay anything at all. Many people find it unsettling to think that the Social Security trust fund would run out by 2034, according to the Social Security Board of Trustees. As a result, Social Security currently functions more like a safety net that barely covers necessities for life. 3
• greater longevity
• Our lives are becoming longer. As a result, we need a larger retirement fund than previous generations.
• The environment is changing.
• The world of finance is always changing. In today’s global economy, there are a lot more players and variables that might affect the market. The financial markets are becoming increasingly faster and more volatile due to the rapidly evolving environment brought forth by technology advancements like electronic trading. When combined, these elements may lead to divergent opinions and make it challenging to develop, execute, and adhere to a financial strategy.
• Too many options
• Confusion for consumers is caused by the competition for assets among banks, credit unions, brokerage houses, insurance companies, credit card companies, mortgage companies, financial planners, and other financial service providers.
• Why Is It Important?
• To ensure that customers save enough money for a comfortable retirement while avoiding excessive debt that might lead to defaults, foreclosures, and bankruptcy, financial literacy is essential. According to a 2008 survey by financial services organisation TIAA-CREF, persons who are highly financially literate make retirement plans and, therefore, are twice as wealthy as those who do not. On the other hand, those with inadequate financial literacy tend to borrow more, be poorer, and pay more for financial goods. Stated differently, those with less financial literacy often use credit, which makes it difficult for them to pay off the whole amount owed each month, leading to higher interest costs. This group also doesn’t invest, struggles with debt, and doesn’t fully comprehend the conditions of their loans or mortgages. What’s even more concerning is that a lot of customers think they know a lot more about money than they really do.
• Furthermore, despite the fact that this could seem to be a personal issue, it is more widespread and has a greater impact on the general public than was previously thought. The 2008 financial crisis serves as a clear example of the financial effects that a lack of knowledge about mortgage products has on the economy as a whole. Improving financial literacy may pave the path for a robust and competitive global economy. It is a problem with wide-ranging consequences for the state of the world economy.
• The knowledge and comprehension of several financial matters, such as managing personal finances, money, borrowing, and investing, is known as financial literacy.
• The United States is seeing a decline in financial literacy, as shown by the fact that just 34% of respondents correctly answered four out of five questions on the subject when asked by FINRA.
• In addition, with more individuals managing their own retirement accounts, transacting online, and carrying debt from credit cards, loans, medical bills, and mortgages, financial literacy is more crucial than ever.