Financial literacy matters

“Money makes the world go round”, “money talks”, “money matters” are some of the famous quotes we have been hearing for a long time. Financial literacy plays a vital role in understanding the importance of income, saving and investing at the individual, family, institutional and national level. Financially literate people make informed decisions and make good choices about income, investing, saving and borrowing. In contrast, financially illiterate people do not understand money management and face challenges in financial decisions in their day-to-day tasks, leading to problems managing expenses, even for basic necessities like food. , clothing, housing, education and health care.

According to the Global Financial Literacy Survey report, financial literacy in Pakistan stands at around 26%, while developed countries like Denmark, Sweden, Australia, Germany and the UK have about 70% more financially educated population.

Unfortunately, our society is primarily consumer-driven, as the pattern of spending is erratic and excessive due to misinformed personal and family budgeting, lack of income generation, lack of savings and a lack of investment opportunities. Economists and financial experts emphasize spending 50% on essentials, 30% on non-essentials, and 20% on savings.

Other reasons why Pakistan is a consumer driven society is the growing tendency to be status conscious as people tend to imitate and compete with each other to improve their lifestyle by building expensive houses , buying luxury vehicles and spending too much on weddings, gifts, protocol and the like. useless items just to impress others no matter they can afford them or not. And to satisfy their incessant desires for luxury, they do not hesitate to take out loans from banks by mortgaging their properties. Even public office holders – MPs, MPs and civil servants – engage in unfair means, looting, embezzlement of public funds and abuse of government property, as also reported in the media.

Uncontrolled borrowing also exists at the government level, with the result that our total public debt has exceeded 80% of our total GDP. Repeated loans are contracted from international financial institutions such as the IMF, the World Bank, the Asian Development Bank as well as from friendly countries. Ever-increasing indebtedness increases the cost of our debt service, thus increasing annual expenses – which the government only tries to cover by raising utility prices and increasing taxes, adding to the burden financier of the ordinary man, who in turn is forced to borrow either from banks or from relatives.

The way forward is to do budgeting at the individual, family and organizational level by determining certain steps. It is necessary to calculate the expected income generated from multiple sources such as investments, salaries and daily wages. All unavoidable expenses for basic needs such as groceries should be listed. Expenses related to education and health care, housing rent, electricity and gas bills and other similar needs should be added up. All variable and non-essential expenses such as gifts, dining out, expenses for wedding and birthday invitations, and entertainment should also be estimated. After all this, all fixed and variable expenses should be categorized, calculated separately and broken down on a monthly basis for critical analysis.

Finally, it is essential to assess your spending habits and check your financial goals to determine whether or not you are spending more than your expected income. In the event of overspending, it’s time for you to adjust your spending by cutting your non-essential and less important expenses. Otherwise, continuing to overspend can only bring frustration, anguish and serious problems in the management of personal, household and institutional affairs. Therefore, having financial literacy is important for every individual, family, and organization in the context of managing money effectively in day-to-day transactions by following budgeting principles in their true spirit.

Published in L’Express Tribune, June 16e2022.

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Sarah J. Greer