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Financial literacy is defined as combining financial knowledge with attitudes, skills, and behaviors, which are important in order to make a financial decision based on personal circumstances. It helps improve your financial well-being. Undoubtedly, being financially literate will assist in influencing financial decisions. The ability to make financial decisions and improve financial well-being are two confusing aspects according to the definition of financial literacy.  

Concepts defining financial literacy have failed to highlight the financial issues associated with the complex financial environment. According to the definition of financial literacy, anyone can be considered financially illiterate for not having enough skills or knowledge regarding finances. Researchers have anticipated that people who have low incomes carry the same behaviors, biases, weaknesses, and attitudes compared to those suffering from personal and stressful situations.

It has also been observed that being financially literate becomes very hard for people living in poverty to change their financial conditions. In addition, financial assets may affect people who earn less adversely as it falls into the ‘bank fee poverty trap’. This is mainly because they do not own any mortgages or they have minimum bank balances to give up.

Problems with the Concept of ‘Financial Literacy’


Following certain cultures will enable individuals to become financially literate. Financial literacy lacks in determining how others are affected when an individual makes a financial decision. For example, supporting a local store that will open opportunities for employment by creating ample benefits specifically for the community. Whereas shopping online is more likely to be a great financial decision, but it will create adverse effects on those who are running physical stores. It is important to highlight influences of financial decision making and how others are affected according to the definition of financial literacy. It includes cultural and personal values, socioeconomic status, life stages, professional associations, educational level, media, and much more.

Financial Dilemmas

Financial literacy is an individual’s capacity to gain more knowledge by reflecting on critical consequences of financial decisions. These are referred to as “financial dilemmas” which include stressful situations such as sudden expenses or unemployment. It has also been observed that people with low income turn out to be the “best budgeters”. It is mainly due to the implementation of their practiced survival skills. For instance, if there is an option to either pay rent or feed the family, then an individual’s financial decision may be conflicted. It is not a “lack of financial literacy” that affects decisions, instead low income families have a strong hold over there financial matters. It is necessary to expose financial limitations, as it will allow implementing concepts of financial literacy per the original context.


Another main issue related to financial literacy is that only 17 states are providing financial education. It is necessary for schools to give important life lessons pertaining to financial skills to youngsters. This will help them to monetize labor and  manage their assets efficiently. There is a definite need for programs comprised of financial literacy skills to be offered to students so that they will learn how to manage and implement their finances appropriately.

Financial Literacy is a Collective Problem

Issues related to financial literacy are not associated with only one individual. It is a collective problem of the whole nation as it has a direct effect on the younger generation. It is important for our nation to make plans on how to implement the concept of financial literacy in the best possible manner. Governments should allocate funds for proper training programs that will create awareness regarding financial management. It is necessary to impart financial literacy onto young adults as it will allow them to make better financial decisions and manage their finances more eloquently.

‘Increasing financial literacy isn’t just in the best interest of individuals, we all benefit from a more literate population.’ (Guest, 2017)

Addressing problems associated with financial literacy will help our nation to grow in terms of improving the lifestyles of our citizens. This can only be possible if financial literacy is integrated in the manner it should be. Governments should consider ways to improve financial issues by initiating awareness seminars. This will lead to a more educated and well-versed population in the disciplines of finance and financial management.

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