why is personal finance important essay

5 Reasons Personal Finance Should Be Taught In School

Piggy bank with glasses and blackboard

Having basic personal financial skills is one of the most important things you can do to live a healthy, happy and secure life. Your level of understanding around the fundamentals of budgeting, saving, debt and investing will impact every part of your life and can mean the difference between prosperity or poverty.

With how important these basic life skills are, it's shocking that only 17 states require students to take a high school course in personal finance. High schools teach Geometry, Art, Latin, and Home Economics—all valuable to know for sure. But how often on a day to day basis do you need to calculate the area of a trapezoid? Personal finance is a necessary life skill that must be taught in schools. Here are five reasons why:

1 - Money touches everything.

At 18 years old, kids are thrust out into a world where every step they take from graduation to retirement will be directly impacted by their financial knowledge and money management skills. Career decisions, buying your first house, getting married, having children—finances all play a massive role in each of these life events. And it's not just the major ones; finance is a part of our everyday life. Whether it's where we eat, what we buy, traveling, going out with friends or negotiating prices, every day we are faced with financial decisions. Young adults lack the experience and education to make these decisions - big or small.

2 - The Majority of Americans want personal finance taught in schools.

When it comes to financial education in schools, many adults feel that more should be done to help students get a head start. A recent Credit Karma/Qualtrics survey found 63% of respondents think personal finance education should be taught in schools. Although nearly two-thirds of Americans are in agreement of the importance of finance in our schools, respondents were a bit divided over when this should happen. 

• 30% believe it should start in elementary school (Author included!) 
• 33% believe it should start in middle school
• 32% believe it should start in high school
• Only 5% believe it should start in college

Despite some debate over just how young is too young when it comes to learning about personal finance, or where that education should occur, the study shows many Americans are aligned on putting school-sponsored personal finance education on the political agenda. More than three-quarters (77%) of those surveyed believe politicians should push to add financial education in schools, and 67% of those surveyed would prefer to vote for a candidate who prioritizes adding mandatory personal finance education to the public school curriculum. 

Additionally, there’s a lot that Americans would be willing to give up to receive better financial education, including happy hour (35%), dating apps (29%), morning coffee (24%), vacation days (12%) and even their sex lives (8%). 

3 - Lack of financial knowledge has painful consequences

Finances are understandably one of the major causes of stress for adults. Everyone can relate to this stress; even the wealthiest people have felt financial pains at one time or another. Debt and/or a lack of savings can cause considerable hardship on a person’s life. And it doesn’t just cause daily stress. Financial problems can lead to divorce, poor health, depression, and bankruptcy.

The statistics below show that plenty of adults are feeling the pressure of financial issues. Many of these could be avoided with some basic knowledge.

●     Nearly half of Americans don’t have enough cash available to cover a $400 emergency . Getting fired or having a medical emergency without any savings would be devastating. Understanding the importance of an emergency fund could prevent this.

●     Millennials are starting their careers with a combined $1.52 trillion in debt . Students coming out of college have more crippling student loans than ever. They are spending years trying to pay them off, which means they are saving less than they could. Being taught about debt, the different ways to pay for colleges, and the importance of not borrowing more than you can afford could help to prevent these massive numbers.

●      38% of U.S. households have credit card debt . On average, they owe $16,048 with an APR of 16.47%. While some debt, like mortgages or student loans, can be considered “good” debt, credit cards are most definitely not. Learning the dangers of credit cards and high interest rates are critical, as well as the importance of paying them off.

●      33% of American adults have $0 saved for retirement. Considering the fact that most will need at least $1 million to retire (for 30 years of living), a lack of savings is a major problem. The most important rule in saving for retirement is to start early. However, seldom do because they weren’t taught the important of compound interest and time.

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4 - Financial literacy leads to a healthier life

More than half (51%) of millennial respondents surveyed answered that they feel their level of personal finance knowledge is holding them back from making financial progress, compared with just 43% of Gen Z and 26% of Gen X and older. And, they are right - it is holding them back from their full potential. The positives that come with having a financial education are undeniable, such as:

• Promotes good savings habits. Just imagine if your child came out of college and started immediately saving for their future. Imagine if we all had.
• Budgeting teaches awareness and responsibility. If someone has a budget that they actively manage, it forces them to look at their spending. They are aware of how much they have available, and this leads to making better spending decisions.
• Smart financial decisions positively affect one’s credit score which impacts their entire life: getting a job, applying for a credit card, renting an apartment, buying a home or car, getting insurance, even signing up for their power bill. Having an excellent credit score means saving thousands and thousands of dollars in interest payments over their lifetime.
• More jobs, more money, and less debt are good for the economy as a whole.
• Understanding money management leads to financial health and positive attitudes around money. People’s attitudes around money can be instrumental in shaping their character, plus promotes the desire to give back.

5 - Where else will they learn it?

The study showed that in lieu of school-sponsored personal finance lessons, many Americans turn to alternative sources of money advice and information. For example, 41% of respondents said they’re self-taught, while 37% said their parents taught them about finances. Just 12% said they learned about personal finance from teachers.

Why is Personal Finance Important?

by Hope Dorman | Jan 17, 2024 | Finance

Money, currency, and finances are incredible: they power both ordinary, day-to-day interactions in our lives, the global economy, and everything in between. Money gives people more than just the ability to buy things – at its core, it comes down to having deeper things like choices, freedom, and security. Having a strong base in personal finance skills is the key to unlocking those greater attributes that money can provide. Understanding personal finance and how to leverage money, the banking system, loans, investments, and more means that money works for you, not the other way around.    Studies show that people who take money management courses make improvements in multiple types of financial wellness measures. However, not everyone gets a foundation or education in personal finance from school or their families, so they may have to seek out resources to fill in their knowledge gaps. In this blog, we’ll cover why personal finance education is important (with data) and some foundational topics in personal finance. Let’s dive in! 

Importance of Personal Finance Education

First, let’s cover why personal finance education is so important and impactful: it is a key to building empowerment and financial well-being. As you gain more knowledge and awareness of how the financial system works, you can make informed decisions about budgeting, saving, and investing, which paves the way for financial success. Personal finance goes beyond having sufficient or surplus money to cover your needs. Both are also about knowing how to use your money effectively. There are many people with high incomes who lack personal finance education and in turn make money choices that don’t serve their needs as well as people with modest incomes but equipped with solid personal finance skills.   As a result of having education about personal finance, that personal finance savvy can bring about financial wellness. For example, another valuable impact of personal finance education is that it can provide better access to credit. Financial institutions are more inclined to extend credit to individuals who have demonstrated responsible financial behavior, and often at lower interest rates, meaning the cost of borrowing money is less. This access to credit becomes a powerful tool, since most people need it to make significant life purchases such as buying a home or car or opens doors to things like starting a business. It creates opportunities that may have otherwise been out of reach if you had to pay in full for something at the time of purchase.  Keep reading – in the next section we share some links to free online courses you can take to build your finance skills!  Additionally, finances and mental health impact one another, and having a solid handle on your finances can help you minimize money stress. The ability to budget effectively and plan for future expenses can reduce anxiety about potential financial uncertainties. People with strong personal finance savvy can bounce back more easily from unexpected financial challenges as they have the financial knowledge to navigate through difficult times. Check out our blog about the psychology of money to dig deeper into the relationship between money and our mental health!

Outcomes of Personal Finance Education

Personal finance education is important because in short, it helps people form better financial habits that set them up for success!   First, let’s look at a study that found that personal finance education positively impacted the students’ bank account deposit amounts and account holding. The Federal Deposit Insurance Corporation (the agency that insures bank deposits, of which Milli is a member) offered a financial literacy curriculum for adults called Money Smart to enhance their money management skills. The FDIC measured the results of over 600 students before and after the program. Prior to taking the course, just 19% of the students had a savings account, but that rose to 69% after the program. After the program, 69% of students increased their level of savings, and 53% decreased their debt. The course took between 10 and 20 hours to complete, so a bit of an investment in time, though many would consider it well worth it for the gains in financial security.  Being educated about personal finance can also positively impact someone’s credit score. The National Financial Educators Council points to some promising data about the positive effects of financial education. They report that three states started mandating personal finance education starting in 2000, and they measured credit scores before and after. They reported, “the credit scores are recorded on a 280-850 scale. For students participating in the programs’ 3rd year of implementation, credit scores increased 10.89 in Georgia, 16.19 in Idaho, and 31.71 in Texas.”  Researchers from the University of Pennsylvania conducted a review of multiple studies to see the broader impacts of financial literacy. The research shows that more financially literate people were more likely to have more wealth, more likely to refinance mortgages when it was in their financial best interest, and less likely to struggle with credit card debt or use alternative high-cost borrowing methods. Access to personal finance education to build financial literacy, however, is not universal. According to the Council for Economic Education , as of August 2023, 30 states in the U.S. require high school students to take a personal finance course to graduate, and 25 states require a course in economics. This is great progress from the year 2000 when only seven states required a personal finance course. However, it still means millions of American high school students graduate and begin their adulthood without formal education on money and finance.     Fortunately, there are tons of resources to learn about personal finance, such as books, podcasts, and blogs like this. There are also free online personal finance courses offered by universities if you’re looking for a structured learning experience:  

• Brigham Young University – Beginner, Intermediate, and Advanced Personal Finance Courses  
• Purdue University – Planning for a Secure Retirement  
• University of Illinois—Urbana-Champaign – Financial Planning for Young Adults  
• Duke University – Behavioral Finance  

Foundational Personal Finance Topics 

If you’re looking for a roadmap to build your knowledge on the foundations of personal finance, get familiar with these topics: 

Mastering budgeting is the first step towards building a strong financial foundation, as we all must make decisions about how to spend our money to meet our needs. Strong budgeting involves allocating income wisely, distinguishing between needs and wants, and planning for future goals. A well-crafted budget empowers individuals to manage expenses, then move on to saving and investing.   Looking to build or refine your own budget? We’ve got a guide to budgeting for beginners and fine-tuning your finances for those looking to take their budget to the next level. 

Emergency Fund

After (or concurrent with) budgeting, many finance experts recommend the next personal finance step is to build a special dedicated emergency fund. This financial cushion provides peace of mind as it allows someone to cover unforeseen financial challenges, like sudden expenses, or meet their needs in case of a job loss. By having a dedicated emergency fund, people can navigate disruptions and minimize their need to rely on credit to meet their needs, since credit can come with additional borrowing costs and make the initial expense more costly. How much should you save in an emergency fund? Finance experts recommend a goal of one month’s worth of your expenses to start, then three months, then six months. Others set a target for having their annual health insurance deductible saved, if they’re planning for medical expenses.  If you’re looking for a place to keep your emergency fund, check out Milli’s Savings Account ! Our competitive annual percentage yield means you can grow your emergency fund passively, and our savings automations can help you build it up over time. If you ever need to use the money in the emergency fund, you can instantly transfer money from your Milli Savings Account to the Spending Account and make purchases with the Milli Visa® Debit Card. It’s easy, convenient, and designed to help you have access to your money for the things that matter most to you. 

Once you master covering your expenses and have an emergency fund, broader saving is the next step. Saving gives your incoming money the role of preparing for future spending and growth by compounding with interest. Savings often fund major life goals or milestones like buying a home and funding retirement, which are the two biggest assets that make up Americans’ net worth. Having savings also allows you the freedom to make choices that align with your values and goals, because it’s financially feasible.  Many budgeting models recommend setting a target to save 20% of your after-tax income (with 50% going to needs and 30% going to wants), which is a helpful benchmark.  However, being able to save money at all requires more than just discipline: you need sufficient disposable income. Budgeting will only go so far. If you find you need or want more cashflow coming in to reach your goals, check out our tips on increasing your income to increase your savings.  

Debt Management

Debt management is a pivotal aspect of personal finance, because it is a structured approach to paying back existing loans or navigating future borrowing. Borrowing money often comes with a cost in the form of interest on the balance, so it’s important to be intentional about using borrowing wisely. Strategic lending can make significant expenses manageable; loans for homes, education, and vehicles, when managed prudently, make it possible for people to access essential assets and investments. Understanding how to leverage lending responsibly and effectively pay back any existing debt can help you meet your needs and work toward your long-term goals. 

Retirement Savings

Saving for retirement is another core pillar of personal finance, as it is a proactive step you can take to secure your financial well-being in later years. Some are motivated to save to retire from work early and dedicate time and energy to their passions – that’s something worth saving for!  Saving for retirement involves regularly contributing to retirement investment accounts, like 401(k)s or individual retirement accounts that grow over time and build a nest egg. There are also some tax advantages to certain retirement accounts that can be helpful in the present. By starting early and consistently saving, you can harness the power of compounding and turn a small percentage of your income now into enough to live on comfortably in the future.  

Personal finance is important because of the critical role that money plays in our lives. The data backs it up; the studies we dove into show the positive impact that personal finance education can have on personal finance outcomes. These studies are a good reminder to consistently carve out some time to keep your knowledge current. Fortunately, there is wider access to educational materials thanks to the internet, so it’s easier than ever to get informed. Pick up a personal finance book or tune into a personal finance podcast to brush up your knowledge or learn about a completely new aspect of money management!  

Keep reading on the Milli blog to deepen your personal finance knowledge:  

11 Best Personal Finance Books

5 Pillars of Financial Literacy 

Spend Smarter Today, Save More for Tomorrow.

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Personal Finance, Essay Example

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One’s financial plan is an essential component for any prospective notions of personal wealth and readiness for retirement.  In a distinct set of areas, these personal goals in my plan of action are realized for financial independence.  In the matters of my personal budget, investments, and way of life these factors come together to create a harmonious financial plan for realizing my financial goals.  It is extremely important to examine one’s budget to gauge one’s financial abilities and leverage.  This will dictate the amount of money for investments, in accordance with one’s financial goals.  Finally, cutting down expenses and making other decisions about one’s way of life can provide additional financial relief.  These steps are important in being able to realize personal wealth and readiness for retirement. There are a number of things to consider from a personal standpoint in regards to one’s finances.  Planning for the future and for my retirement is something that requires a plan, along with establishing a plan to attain wealth.  There are a number of things that need to be in consideration in order to obtain wealth and plan for the future.

Before personally identifying numbers from which to work, my personal budget needs to be take in consideration.  One must work within his or her means, and this is of course true in my case as well.  My financial plan must take into consideration where I am right now in regards to my financial goals and in these dynamics.

The first step is identifying my expenses.  This is a process that will allow myself to examine whether my expenses are reasonable.  Furthermore, I will be better able to reduce my expenses after examining them in detail.

Cutting down on my expenses will do two things immediately.  Firstly, the immediate impact to my budget and financial comfort will be improved.  I will be better able to control how much money is spent in various areas, which will put me at better ease financially.  Secondly, there are important benefits in the long term for such efforts.  By cutting down on unnecessary expenses, I will be able to realize this lost money and invest it in my future, or at least a place that will benefit me financially.

Retirement Account

Once the expenses are identified in my budget, my retirement account should take on a high priority.  Even if I am unable to make the maximum allowed contributions to my retirement account, it is important that I establish a place for my retirement account in my budget.  If I keep these consistent payments going into my retirement account, I will put myself in a better financial stance for the future.

With regard to my budget, examining my income and expenses will allow me to decide how much I can afford to contribute to my retirement account.  This process will help me identify the level of financial flexibility I have.  Obviously, I will have to take other investments into account as well, in addition to my retirement account.

After identifying the constraints of my budget, I should make a plan in accordance with my retirement.  By identifying an amount to target for my retirement, I will be able to project interest for a certain number of years, in order to gauge how much I will need to contribute on a monthly basis.  Of course such calculations will not be exact, but by doing this I will be able to adjust my calculations based on differences in my contributions, or interest levels in my investments.

Another valuable aspect of my finances are other types of investments.  Investments are a great way to establish personal financial growth.  Identifying investments, such as CDs, stocks, and other types of investments will allow be to better realize personal wealth and growth in my financial goals.

Devoting part of my budget to investments is another important part of my financial plan.  I have identified a number of investment options that will work with the limitations and opportunities in my budget.  Separating short-term from long-term investments, I have allocated an amount to realize investments as part of my overall financial plan.  For me my budget, encompassing all aspects of future financial growth is important, from short, long, and retirement-based investment plans.  In my every person should allocate funds to each, regardless of the budgetary demands of one’s finances.

The Way of Life

Managing one’s finances is more of a way of life than anything, at least according to my perspective.  When all of these factors are considered, it is important to stay focused on one’s financial goals.  Even for someone who does not have many financial resources, it is important to have a plan of action and to stay committed on executing that financial plan to realize these financial goals.

Cutting down on expenses is a matter that is very important to one’s financial goals.  To a certain extent this becomes a way of life.  For instance, some households easily spend a hundred dollars a month on unnecessary groceries, such as expensive snacks and drinks.  However, if lower-cost replacements could be utilized, the savings and the potential investment return on such savings would be impressive.

Thus one should approach one’s budget with a positive approach.  One can easily cut down on expenses in many different ways, from eating out and buying cheaper groceries, to limiting one’s entertainment budget.  If these expenses can be cut on a regular basis, budgets would be much more easy to handle, and much more conducive to realizing the financial goals of many.

In identifying my plan of action, this is an approach that I am taking.  Even if I don’t have as much money to allocate to investments and a retirement account, it does not mean that I can’t cut spending.  Then, once I cut my spending, I can potentially see valuable returns in investments over time.  These potential returns will be able to go a long way to my financial goals, retirement-related goals, and my plan for obtaining personal wealth and financial freedom in both the short-term and long-term.

One important aspect that cannot be overstated is commitment.  In my opinion, if one is committed to his or her finances, he or she will be able to cut spending and obtain financial freedom.  Similar to my situation, even if one doesn’t fell as if though many financial assets can be allocated to investments, respectable returns can be seen on money saved through other means.  One doesn’t always have to have a large income to be financially successful.  It can easily be obtained with smart spending and planning as well.

My plan for realizing my financial goals starts with my budget.  Examining one’s budget is arguably the first crucial step for obtaining a plan of action in the face of financial goals.  By identifying both the income and expenses of one’s budget, one is able to gain awareness of the flexibility or lack thereof in one’s finances.

Allocating amounts of money to investments is a primary course of action in my financial goals.  In order to realize a level of personal wealth and readiness for retirement, investments must be a part of my financial plan of action.  This remains an important part of my budgetary considerations for realizing my financial goals.

In my plan for financial success from the short to long term, I have realized that much of this revolves around one’s commitment.  Even if one is unable to allocate even the smallest amount to an investment account, one could do so if he or she cuts down on unnecessary expenses.  With these goals in mind, anyone can realize financial independence and wealth with these basic steps.

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What Is Personal Finance?

Definition and examples of personal finance, how personal finance works, how can you be good at personal finance, increase your personal finance literacy.

Willie B. Thomas / Getty Images

Personal finance describes how you save, spend, and invest the money you have (your financial resources). If you’re good at managing money, then you’re good at personal finance and vice versa.

Key Takeaways

• Personal finance refers to how you spend, save, invest, and manage the financial resources you have.
• Personal finance is important because it determines the type of lifestyle you’re able to enjoy both now and in the future.
• At its most basic level, personal finance is about spending less than you earn and using what’s left to reach your goals.
• You can increase your financial literacy by seeking out personal finance podcasts, books, apps, and other resources.

Personal finance is a concept used to define how well you manage your money. It takes a look at how you spend, save, protect, and invest your financial resources to create the type of lifestyle you want to enjoy.

Personal finance covers a range of topics, including:

• Income generation
• Loans and mortgages
• Investments
• Retirement planning
• Tax and estate planning

“Personal finance is simply the approach we take to using money,” said Todd Christensen, AFCPE at Debt Reduction Services and author of “Everyday Money for Everyday People.”

According to Christensen, examples of personal finance might include:

• Planning your monthly spending
• Balancing your checkbook or debit account
• Transferring money from your checking account to your savings account
• Setting up direct deposit for an IRA
• Taking only the cash you plan to use on groceries into the store so you don't overspend

You may have heard your grandparents say, “Live below your means and save the rest.” This is the essence of personal finance—making smart decisions with your money now so you have freedom and options later on.

“Personal finance is more than budgeting,” said Lauren Zangardi Haynes, a CFP, CIMA, and CEPA at Spark Financial Advisors. “It’s understanding credit cards, how compound interest works for you (or against you), understanding Roth vs. pre-tax savings, planning for a rainy day, making housing decisions, and saving for college and retirement. It’s interwoven in our daily lives at every corner.”

Zangardi Haynes went on to say that understanding personal finance is key to reducing anxiety around money. You don’t have to be an expert. You just need to know the basics.

Being good at personal finance is all about making your money work for you—regardless of how much you have.

“Money touches every aspect of life, and if a person doesn't know how to manage it, then it can lead to a lifetime of headaches and stress,” said Ksenia Yudina, CFA, founder, and CEO of UNest. “Once a person gets a handle on their finances, then they can spend time focusing on the things that matter most in life.”

Here’s how to get good at personal finance.

Set Clear Financial Goals

Everyone has a vision of what financial success looks like to them. Maybe for you, it’s having a credit score over 800, retiring by age 50, or helping your kids avoid the student loan squeeze. For others, it may be driving a luxury car or owning a second home by the beach.

Whatever your goals are, you must create a clear framework for achieving them if you want to be successful. Be SMART about your goals . Make them specific, measurable, achievable, realistic, and time-bound (SMART).

Start Budgeting

Learning to budget is one of the basics of personal finance. It involves tracking your income and expenses so you can see where your money is going each month. When done right, a budget puts you in control of your money. It gives you the freedom to spend more on things you love by spending less on things you don’t. There are a lot of budgeting apps to help you automate the process.

Build an Emergency Fund

If you always feel like you don’t have enough money to pay the bills, an emergency fund could provide some relief. It’s one of the basics of personal finance because it gives you a safety net to fall back on if something unexpected happens (such as your car breaks down or your cat needs an emergency vet visit).

Many financial advisors suggest you keep three to six months of basic expenses in a savings account for your emergency fund . If that seems out of reach, start small with a $1,000 starter fund or one month’s worth of expenses. Anything is better than nothing.

Pay Off Debt

Getting out of debt can be challenging. But there are a lot of reasons why you should do it. Becoming debt-free increases your financial security, gives you more money to spend on things you enjoy, and improves your credit score.

Making a plan to pay off your debt can be one of the best things you do for your personal finances—especially if you have high-interest debt. “Eliminating high-interest debt should be a top priority when it comes to personal finance,” said Yudina. “This type of debt can quickly spiral out of control and derail any financial plan you have in place.”

Start Saving for Retirement

Saving for retirement has all types of benefits—you can deduct contributions from your taxes, you build up a nest egg for the future, and you may get free money if your employer offers matching contributions.

Many financial experts recommend saving 15% of your pre-tax income for retirement. If you’re not saving anything at the moment, contribute at least enough to get the full employer match , if one’s available. After that, consider maxing out a Roth IRA, then going back to your 401(k). (This is a popular retirement savings rule of thumb people follow.)

Stick With It

The goal of personal finance is to spend less so you have more money to save and invest. Although it’s a simple concept to grasp, it can be difficult to stick with it when you’re constantly bombarded with marketing messages telling you to buy more, more, more.

Each time you go to make a purchase, ask yourself, “Does this item bring me one step closer to the life I want to live? Will I enjoy this purchase or am I just buying it to buy it?” By asking yourself questions like these, you align your spending with your values and minimize your chances of wasting money on something that puts you farther away from your goals.

When you have financial literacy, you understand all the facts, tools, and principles you need to be smart with money. Unfortunately, financial literacy isn’t taught in many U.S. school systems. It’s up to you to seek out this information if you want to be successful with your finances.

Stuck on where to start? Here are three resources you can tap into to increase your personal finance literacy.

Personal Finance Podcasts

Some personal finance topics can be confusing, even dull—especially if you’re new to it. Podcasts that break topics down in clear, inviting ways can help you better visualize how they apply to your life. There’s no shortage of great personal finance podcasts to listen to and learn from.

Personal Finance Books

Reading personal finance books is also a great way to learn how to manage your money better. Books cover all the personal finance basics, including how to invest, pay off debt, change your money mindset, increase your income, and more.

Save money by borrowing personal finance books for free from your local library.

Personal Finance Software

Personal finance software and apps are hands-on tools you can use to manage your money and reach your goals. Some help you budget and track expenses while others help you manage your investments.

Fidelity. " How Much Should I Save for Retirement? " Accessed Nov. 19, 2021.

Essay on Financial Literacy for Students and Children

Importance of financial literacy, an introduction to financial literacy.

We go to schools, colleges, universities to complete our educated and start earning our livelihood. We take up jobs, practise professions or start our own businesses so that we can earn money to make our living. But which of these institutions make us capable of managing our own hard-earned money? Probably a very few of them. 

Our ability to effectively manage our money by drawing systematic budgets, paying off our debts, making buying and selling decisions and ultimately becoming financially self-sustainable is known as financial literacy. 

Financial literacy is knowing the basic financial management principles and applying them in our day-to-day life. 

Financial Literacy – What does it Involve? 

From simple practices like keeping a track of our expenses and understanding the need to spend money if we like a product to striking a balance between the value of time saved and money lost, paying our taxes and filing of tax returns, finalizing the property deals, etc – everything becomes a part of financial literacy. 

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As human beings, we are not expected to know the nitty-gritty of financial management. But managing our own money in a way that it does not affect us and our family in a negative way is important. We certainly do not want to end up having a day with no money at hand and hunger in our stomach. 

Why is Financial Literacy so Important?

Financial literacy can enable an individual to build up a budgetary guide to distinguish what he buys, what he spends, and what he owes. This subject additionally influences entrepreneurs, who incredibly add to financial development and strength of our economy. 

Financial literacy helps people in becoming independent and self-sufficient. It empowers you with basic knowledge of investment options, financial markets, capital budgeting, etc.

Understanding your money mitigates the danger of facing a fraud-like situation. A few strategies are anything but difficult to accept, particularly when they’re originating from somebody who is by all accounts learned and planned. Basic knowledge of financial literacy will help people with foreseeing the risks and argue/justify with anyone learned and well-informed.

What should you read on / get informed about in Financial Literacy?

• Budgeting and techniques of budgeting
• Direct and indirect taxation system
• Direct tax slabs
• Income and expense tracking 
• Loans and debt – EMI management 
• Interest rate systems: fixed versus floating
• Business and organisational transaction studies
• Elementary Book-keeping and Accountancy
• Cash in-flow and out-flow Statements
• Investment & personal finance management
• Asset management:
• Business negotiation skills and techniques
• Make or buy decision-making
• Financial markets 
• Capital structure – owner’s funds and borrowed funds
• Fundamentals of Risk Management
• Microeconomics and Macroeconomics fundamentals

While there are various media to learn about financial literacy, we recommend that you join a short-term, weekend programme which helps you get financially literate.

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5 Ways to Manage Your Personal Finances

• Rakshitha Arni Ravishankar

First, let go of your limiting beliefs about money.

Talking about money can feel awkward, uncomfortable, and even scary. Here are five pieces of advice from our authors on how to feel in control of your personal finances.

• Let go of your limiting beliefs about money.
• Take ownership of your money.
• Always set a timeline for your money goals.
• Build an emergency fund.
• Create a diverse portfolio of investments.

Money can evoke a range of difficult emotions for many of us. This anxiety only grows when we’re living through economically fragile times or don’t come from wealth . It can feel awkward, uncomfortable, and even scary to navigate these feelings when they show up. But know that it’s still possible to make smart decisions that will help you become financially stable .

• RR Rakshitha Arni Ravishankar is an associate editor at Ascend.

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Home — Essay Samples — Science — Science and Culture — The Importance of Budgeting

The Importance of Budgeting

• Categories: Budgeting Science and Culture

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Words: 424 |

Published: Mar 16, 2024

Words: 424 | Page: 1 | 3 min read

Table of contents

1. financial planning, 2. control spending, 3. achieve financial goals, 4. emergency preparedness, 5. improve financial literacy.

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Helps You Work Toward Long-Term Goals

Can keep you from overspending, can make retirement saving easier, helps you prepare for emergencies, can reveal spending habits.

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• Personal Finance
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What Are the 5 Purposes of Budgeting?

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The importance of making a budget is a financial lesson that can’t be overemphasized. When you first go on your financial journey, following a budget can help you practice basic money habits.

Still not convinced? Below are five good reasons why everyone should create and stick to a budget .

Key Takeaways

• A budget is simply a spending plan that takes into account estimated current and future income and expenses for a specified future time period, usually a year.
• Having a budget keeps your spending in check and makes sure that your savings are on track for the future.
• Budgeting can help you set long-term financial goals, keep you from overspending, help shut down risky spending habits, and more.

A budget helps you figure out your long-term goals and work toward them. If you just drift aimlessly through life, tossing your money at every shiny, new object that happens to catch your eye, how will you ever save up enough money to buy a car or put a down payment on a house?

A budget forces you to map out your goals, save your money, keep track of your progress, and make your dreams a reality. By seeing what money you earn and what money you have going out through a budget, you can create a map for where you need to go to get your goal, whether that is purchasing a home in a few years or going to graduate school.

Budgeting can also be used for shorter-term goals. If the brand-new Xbox game or the cashmere sweater in the store window is unattainable right now, then a budget can help you understand what you need to do to get to that goal.

Far too many consumers spend money they don’t have—and we owe it all to credit cards . The average credit card debt per borrower rose to $6,360 in Q4 of 2023, according to credit bureau TransUnion.

Before the age of plastic, people tended to know whether they were living within their means. At the end of the month, if they had enough money left to pay the bills and sock some away in savings, they were on track. These days, people who overuse and abuse credit cards don’t always realize they’re overspending until they’re drowning in debt .

However, if you create and stick to a budget, you’re more likely to not find yourself in this position. You’ll know exactly how much money you earn, how much you can afford to spend each month, and how much you need to save.

Let’s say you spend your money responsibly, follow your budget to a T, and never carry credit card debt beyond monthly due dates. In addition to spending wisely, budgeting can make saving more achievable.

It’s important to build regular saving and investment contributions into your budget. If you set aside a portion of your earnings each month to contribute to your individual retirement account (IRA) , 401(k) , or other retirement funds, you’ll eventually build a nice nest egg . Although you may have to sacrifice a little now, it will be worth it down the road.

Here’s an example of how that could work: Let’s say Trina started a new job last year and wants to take advantage of the employer’s 401(k) plan and matching contributions . She knows that including her own monthly plan deferral from her paycheck in her budget as a recurring expense will help her be consistent in building retirement savings. She’s 36 years old, so she knows that for the 2023 tax year , people her age can contribute a maximum of $22,500 to their 401(k), before employer matching funds.

So, using a calculator provided by her 401(k)’s management firm, she figures out that she should defer $433 per week, or $1,732 per month, from her salary to max out her potential annual contribution for 2023. She adds that figure into her budget spreadsheet under expenses and makes it an automatic subtraction from her disposable income , to separate her retirement savings from her cash available for other expenses.

In some cases, it may seem like a good idea to add larger amounts to your retirement account, but if it means that the reduction in disposable income will result in rising credit card and other debts incurred for everyday expenses, then boosting retirement savings could actually have a negative effect on your  bottom line . Everyone’s approach will vary based on their individual financial situation.

Life is filled with unexpected surprises. When you get laid off , face a costly unexpected home repair, become sick or injured, go through a divorce, or have a death in the family, those circumstances can lead to serious financial turmoil. In these situations, an emergency fund comes in handy.

An emergency fund should consist of at least three to six months’ worth of living expenses, and it should be accounted for when budgeting. This extra money will ensure that you don’t dip into other funds saved for long-term financial goals, such as paying off debt.

Of course, it will take time to save up three to six months’ worth of living expenses . Don’t try to place the majority of your paycheck into your emergency fund right away. The best strategy is to build it into your budget, set realistic goals, and start small. Even if you put just $10 to $30 aside each week, your emergency fund will slowly build up. Budgeting apps , such as YNAB, provide tools for setting up an emergency fund, depending on your chosen approach.

Building a budget forces you to take a close look at your spending habits . When reviewing your expenses, you may notice that you’re spending money on things you don’t need, such as a cable TV subscription. Budgeting allows you to rethink your spending habits and refocus your financial goals.

Taking a look at your expenses, you may see that one month, you spent more money on eating out than cooking at home. By reviewing your budget, you can make effective changes as a result. If you see that you’re overspending target amounts set in your budget for such discretionary items, you may choose to adjust how much you commit to luxury or nonessential spending in lieu of saving for a new car or a major home improvement project that could also add to your place’s resale value.

Why is a budget important?

A budget helps create financial stability. By tracking expenses and following a plan, a budget makes it easier to pay bills on time, build an emergency fund, and save for major expenses such as a car or home. Overall, a budget puts a person on stronger financial footing for both the day-to-day and the long term.

What is an emergency fund?

An emergency fund is three to six months’ worth of living expenses set aside in case of an unexpected life event, such as employment termination, illness, or a hefty home maintenance bill.

What are some key reasons to have a budget?

There are many reasons to have a budget, depending on the individual. A budget can often help build financial independence and freedom. A budget can also set you on the right path to achieving your financial goals, spending within your means, saving for retirement, building an emergency fund, and analyzing your spending habits.

A budget is simply a personal spending plan that takes into account expected income and expenses for a specified period of time. It can bring you one step closer toward financial security. Having and sticking to a budget can keep your spending in check and assure that your savings for emergencies and longer-term goals, such as a comfortable retirement, stay consistent.

TransUnion. " Bankcard Balances Surge Past $1 Trillion as All Risk Tiers Drive Up Their Credit Card Balances ."

Internal Revenue Service. “ Retirement Topics—401(k) and Profit-Sharing Plan Contribution Limits .”

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Should All Schools Teach Financial Literacy?

And should students have to understand topics like budgets, consumer credit, student debt, saving and investing in order to graduate?

By Shannon Doyne

Students in U.S. high schools can get free digital access to The New York Times until Sept. 1, 2021.

How well do you think you manage money? Has anyone ever taught you any money-management skills? In general, how “financially literate” do you think you are? For instance, do you know how to budget and save? How to set up a bank account? Apply for financial aid and college loans?

Does your school teach these skills already? If not, do you wish it did? Should passing a financial-literacy class be a requirement for graduating from high school?

In “ Pandemic Helps Stir Interest in Teaching Financial Literacy ,” Ann Carrns writes about the growing interest in teaching students personal financial skills in U.S. schools:

As of early 2020, high school students in 21 states were required to take a personal finance course to graduate, according to the Council for Economic Education , which promotes economic and personal finance education for students in kindergarten through high school. That was a net gain of four states since the council’s previous count two years earlier. “We are making progress,” said Billy J. Hensley, president and chief executive of the National Endowment for Financial Education, a nonprofit group that promotes effective financial education. “I do think the pandemic is bringing more attention to the topic,” he said, noting that after the financial crisis more than a decade ago there was also a flurry of financial literacy proposals in state legislatures. An increasing number of studies support the effectiveness of financial literacy education when taught by well-trained teachers, said Nan J. Morrison, chief executive of the Council for Economic Education. And more teachers now say they feel confident teaching the material. A study released in March by researchers at the University of Wisconsin and Montana State University found significant increases in teacher participation in professional development. Still, the rigor of high school financial education varies. Just six states require high school students to complete a semester-long, stand-alone personal finance course, the council’s 2020 report found. Some states permit shorter courses or include the content as part of another class. In states that don’t require financial instruction, some schools opt to teach it and do an excellent job, but others ignore the subject completely — and they tend to be schools in less affluent districts, Mr. Hensley said.

The article also outlines the specifics on what the curriculum might look like:

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5 Reasons Why You Should Study Finance

• 23 Apr 2019

If you find finance intimidating, you’re not alone. When many people think of finance, they envision Wall Street high-rises, fancy suits, and frantic stock tickers.

But it doesn’t need to be intimidating. In fact, anyone can—and should—have a basic understanding of finance.

Here are five reasons why finance is essential knowledge for all professionals, regardless of their role, industry, or seniority level.

Access your free e-book today.

Why You Should Study Finance

1. finance is ubiquitous.

It doesn’t matter if you work in tech or education, consulting or advertising. Your company needs cash flow to do things like pay everyone’s salary, distribute dividends, and reinvest in product innovation.

Even if you don’t manage a budget yourself, finance is at the core of business decision-making. If you’re pitching a project or angling for additional funding, understanding and being able to communicate how you can turn that investment into revenue for your organization will help you make a more convincing argument.

Related: The 4 Finance Skills Every Leader Needs No Matter Their Industry

2. Finance Will Help Your Resume Stand Out

If you're looking for ways to differentiate your resume, finance is a good place to start. Especially if you’re entering the workforce as a young professional without extensive experience, showing you have business knowledge before you’re even in the field can make you a more attractive candidate. This is particularly relevant in non-finance fields , where financial education is less common but no less fundamental to running a successful business.

For example, if you’re hoping to land a managerial position, having an understanding of finance can demonstrate key competencies to employers. Managers with finance skills are able to better understand their team’s impact on the overall company and make well-informed business decisions.

"Whatever business decision that you're going to be making, you want to understand all facets of it," says Harvard Business School Professor V.G. Narayanan, who teaches the online course Financial Accounting . "So there are going to be human resource angles to it. There are going to be marketing angles to it. There are operational angles to it. But there's also: 'What is the impact on the financial statements of this particular decision that you're going to make?'"

Watch the video below featuring Professor Narayanan to learn more about why you should further your financial knowledge if you're in a non-finance role:

3. The Finance Industry Is Constantly Evolving

The world of finance has grown beyond traditional big banks. SoFi, Stripe, and Coinbase may not have existed a decade ago, but they have since revolutionized student loan financing, payment technology, and cryptocurrency, respectively. Understanding finance can help you keep up with the growing field of financial technology, also known as “fintech,” whether you want to work in the industry or become a conscious consumer of its products.

4. You’ll Become a Stronger Problem Solver

Yes, finance involves formulas, Excel spreadsheets, and ratios. But it also involves analyzing these numbers and turning them into actionable business insights. For example, consider the concept of value and its role in business decisions. Learning finance will teach you how to understand the difference between price and value, how to create value, and how the future affects value today.

Learning how to take quantitative data and use it to solve problems and make sound business decisions is a valuable skill that can serve you in your career now and in the future.

Related: Financial Terminology: 20 Financial Terms to Know

5. Finance Is Important Outside the Office, Too

While understanding finance is critical for work, it’s also critical for your fiscal well-being outside the office.

We're faced with financial decisions, small and large, every day. Whether it’s choosing to eat in or order out dinner, paying your gym fees in a lump sum or monthly installments, or turning your hobby into a side hustle, these choices require a basic knowledge of finance.

How to Study Finance

Having a clear understanding of basic financial concepts comes with various benefits and can help you excel professionally . Depending on your specific goals and needs, there are different avenues you can take to hone your financial know-how.

To brush up on your financial terminology and get familiar with some basic concepts, you can start by exploring finance- and business-related articles, websites, and newsletters .

To take a deeper dive into the world of finance, consider enrolling in an online finance course . Choosing a course offered by a top business school can enable you to gain a quality finance education in a format that works for your schedule . In addition, programs that award certificates of completion provide the opportunity to showcase your skills on your resume or LinkedIn profile to help advance your career.

Based on your personal and professional goals, your level of work experience, and other factors, you may choose to pursue a graduate degree in a finance-related field. This could be the right path for you if you’re looking to make a career change or land a position that requires advanced finance skills. In this case, you may find it helpful to prepare for a degree program by taking online courses to build a foundational knowledge of finance.

Related: Should You Go to Business School? 6 Benefits of Strong Business Skills

Understanding Finance Is Critical

No matter how you decide to learn about finance, having these skills can bring success in your professional and personal life.

Why is $1 today worth more than $1 tomorrow? How do you choose where to invest your 401(k)? Knowing these answers is fundamental to developing financial literacy and preparing yourself to make smarter decisions throughout your life.

Are you interested in developing financial literacy? Explore our online finance and accounting courses to discover how you can advance your career by gaining a thorough understanding of financial principles. Not sure which is the right fit for you? Download our free course flowchart .

This post was updated on September 10, 2021. It was originally published on April 23, 2019.

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