What is Financial Education?
Increasing technological developments in recent years, the increase in the field of information processing and communication has accelerated the process of “globalization”. It has caused the traditional management approaches of the countries to change. The globalizing world has enabled information to spread rapidly and access to information has increased.
Country economies, companies and individuals are also affected by this change. The economies of the country have made new regulations, the importance of the private sector has increased, the need to create new resources has arisen due to the competitive environment. At this point, the importance of financial education has emerged.
Financial education is an education necessary for everyone to develop financial literacy. Thanks to financial education, individuals can make more effective decisions and at the same time individuals can understand how to use their knowledge. Financial education should not be perceived as a proposal. Because the trainings generally help increase the awareness of individuals and how they should behave in their financial life.
Financial literacy is a way of recognizing economy. More simply, it is a combination of information and skills that helps individuals to make successful and responsible choices due to their own definition of finance. Financial education generally includes the ability to (a) manage money and assets (banking investment, credit insurance and tax) (b) time value and money distribution in basic investments (c) plan, implement and evaluate financial decisions. In other words, financial education means understanding the importance of money and money use or getting information about it. This can be summed up literally as using money effectively.
The Importance of Financial Education for Young People
The importance of financial education is an issue that concerns all societies. The importance of financial education has increased, especially due to economic and demographic changes. Access to economic and financial services is essential for young people because they need assistance in choosing financial products such as loans, savings, and insurance. They need to learn correct and valid information to make the right decisions.
Young people should have goals in their lives and increase their financial knowledge and skills to achieve this. For these reasons, financial education is very important. For this reason, financial literacy education programs have been implemented in many countries, especially for children and young people.
Financial education of children and young people enable them to take an active role in the economy today and tomorrow. However, according to the researchers conducted today, it has been reached that young and adults do not have sufficient knowledge. The US government defends that financial literacy should be at all stages of education because, in the researches, the level of financial literacy of young people is low. In this respect, the US Council states that financial education should start at an early age.
The Need for Financial Education
There have been changes in financial systems recently and have affected the consumer. These changes have also affected the individuals’ financial decisions process. There are responsibilities and risk transfer to the individual in the new system. In the past, governments made insurance and retirement decisions. However, today, individuals are responsible for their own financial decisions. The reason for this is technological developments and liberalization.
Individuals can access financial instruments in a short time and make their own decisions. For these reasons, individuals should take more responsibility. People with inadequate personal finance education are a problem for society. It is a big problem that people cannot manage their income and expenses. The financial knowledge of individuals is insufficient to manage their financial investments such as compound interest, credit, inflation, and some risks in the stock market. As a result, increased awareness of financial education increases the level of social welfare.
As a result, financial education is important to avoid major financial problems and to make good decisions. Individuals with financial knowledge are needed for our developing economy. Therefore, starting financial education training in our country has become a social and economic necessity. Necessary regulations and studies should be made for training.
Benefits of Financial Education
Financial literacy is an important concept for individuals, communities, governments, and financial markets. Financial literacy levels have an impact on the lives of individuals. Financial education not only improves the well-being of individuals but also provides an increase in social welfare and more efficient use of financial markets. Therefore, it contributes to financial and economic stability. While evaluating the benefits of financial education, it is possible to divide it into three categories: contribution to individual well-being, contribution to financial markets, and contribution to social well-being.
Contribution to Individual Welfare
Today, individuals have more financial responsibility. The biggest reasons for this are globalization and technological developments. For example, while individuals make their retirement plans with state institutions, they have started to prefer private pension systems. Until ten years ago, individuals preferred state institutions in their retirement plans, but now they started to prefer private pension systems in their retirement life.
The private pension system allows people not to leave their future in the hands of the state and to contribute to their future on their own. In other words, the diversity of financial products has spread throughout the economic area and the choice of options has increased. Financial education enables individuals to protect their well-being while making optimum decisions.
Individuals should be able to increase their awareness of financial issues and understand financial market instruments. In particular, individuals should carefully consider active and passive situations when making budget plans. For example, people’s awareness of credit card consumption will directly affect their indebtedness rates. At the same time, the right financial education will contribute to making a balanced and organized life plan.
Contribution to Financial Markets and Financial Stability
Financial education will enable individuals to increase the level of financial literacy, get more information from institutions when choosing a financial product, because of these reasons financial institutions will have to be more transparent and reliable. It will also contribute to increasing the efficiency of the markets as consumers will make optimal decisions.
Contribution to the Whole Economy and Social Welfare
Increasing the financial literacy levels of individuals directly contributes to the economic system and social welfare. Wrong decisions made by consumers affect markets negatively. For example, in times of crisis, most consumers made wrong decisions due to a lack of information. Berez researched the financial literacy levels of individuals. He examined the relationship between literacy levels and saving. As a result of the research, individuals with a high level of financial literacy save money.
This situation is beneficial for both individuals and the economy. Individuals can increase their investment level by saving. In addition, when they evaluate their savings through financial institutions, the funds generated can be used in other sources. This will make a great contribution to the recovery of the economy.
The Relationship Between Financial Literacy and Financial Education
There is a positive relationship between financial literacy and financial education. Financial education helps individuals to select and analyze financial products. Individuals make better decisions. As the financial education level of individuals increases, their financial literacy level increases. It has been observed in the studies that training has a positive contribution. The public and private sectors have a great responsibility in this regard. Financial education is provided not only in schools but also in banks, financial consultancy offices, conferences, etc. According to the researchers, it is aimed to increase financial literacy with different training programs. These training programs are:
- In terms of financial knowledge: savings, investment, interest, credit, inflation,
- In terms of financial behavior: budget, investment personal finance, retirement plans
- In terms of financial attitude: These are educational programs to improve financial attitude for correct and efficient decisions.
In other words, financial literacy is increasing with the provision of accurate financial information on financial matters. With this financial information, financial literacy increases, and positive economic decisions are taken by individuals. For these reasons, formal financial education programs that aim to improve the knowledge, attitude, and behavior of individuals should be preferred.