Effects of Financial Illiteracy
Financial illiteracy affects all ages and all socioeconomic levels and the lack of it may lead to poor financial choices that can have negative consequences on the all-round well-being of an individual.
It can cause many people to become victims of predatory lending, subprime mortgages, or fraud and high interest rates, resulting in bad credit or bankruptcy.
The lack of financial literacy can lead to large amounts of debt and poor financial decisions. For example, the advantages or disadvantages of fixed and variable interest rates are concepts that are easier to understand if you possess financial literacy skills.
Research studies on financial literacy have shown that most financial consumers lack the ability to understand and effectively manage basic financial concepts or products. A lack of financial literacy education is responsible for poor money management skills and below-par financial planning for business and retirement.
Here are some of the effects financial illiteracy can have:
- Prohibits individuals from becoming productive members of the economy and society in the same way that the inability to read or write disadvantages generations
- Decreases the chances of assessing financial risks or opportunities. This makes financial choices riskier and potentially damaging
- Handicaps anyone seeking to be financially secure. For example, financial illiteracy can increase the chances of losses due to fraud or scams
- Magnifies the physical and mental issues associated with being in debt and lessens the chances of finding an appropriate debt solution
Financial illiteracy can have detrimental physical, mental and socioeconomic effects on people of all ages and all walks of life. Isn’t it time that financial illiteracy and its effects were consigned to history with compulsory financial education?