Do you remember when you started learning a language course, how you could only speak or write it correctly after you become well informed of the basics and the principles guiding it? Running a business has a similar pattern, and one of the things you need to learn is how to manage your finances. Knowing how to speak the financial language could be described as Financial Literacy.
What is Financial Literacy?
“Financial literacy is the ability to understand and effectively use various financial skills, including personal financial management, budgeting, and investing.” When an individual does not have this ability to understand, it is called financial illiteracy.
Having this knowledge is helpful because the adequate management of funds; starts with making the right decisions for personal funds. How do you manage what is yours? How do you account for what you spend? The answer to these questions will determine how you’ll handle anything else around you.
Why you need to pay attention to Financial Literacy
The lack of financial literacy could lead to wrong financial decisions, which could result in debt, bankruptcy, housing foreclosure, and more. According to the Financial Industry Regulatory Authority (FINRA), it estimated that 66% of Americans lack financial literacy.
In Nigeria, the Central Bank of Nigeria made the “MAYA Declaration” in 2011, to reduce the number of financially excluded Nigerians from 46.3% in 2010 to 20% by 2020. In 2019, strategies were made to ensure that financial literacy was taught in secondary schools before the end of the year. It became necessary to do this because of the rate of financial illiteracy in the nation.
Also, the national president of the Association of Small Business Owners of Nigeria (ASBON), reveals that over 80% of SMEs in Africa have stumbled due to financial issues in 2020.
The success of a business largely depends on financial literacy. While it is necessary to have an understanding of this, hiring the services of a business consulting firm for a start could help bridge the gap. Once you know the true financial position of your business, you’ll be able to make correct financial decisions.
How to improve your financial literacy
Just like it is with learning a new topic or a new language, there is always an opportunity to grow and improve.
Here are 5 tips to help you improve your financial literacy skills.
1. Invest time to learn.
Nothing good comes without necessary sacrifice and effort. Take out time to understand financial literacy and how you need to manage your funds. Learn how to understand financial statements and terminologies. Just like the way you’ll learn something new, invest time in learning this.
2. Create and work with a budget.
As you invest time to learn, practice what you are learning. You can start by creating a budget and ensuring you utilize it. This will allow you to monitor your expenses and be sure not to be excessive with it.
3. Manage your debt.
In the case where you have a loan to repay, creating a budget will help you manage your debt. You’ll be able to handle re-payment plans and stay on top of your debt.
4. Using consulting firms.
As you learn, you could also hire the services of a consulting firm, this way you’ll be able to learn adequately from their analysis, and understand how to read financial reports and statements.
5. Up-to-date financial records.
Using advanced accounting software as opposed to spreadsheets will also help improve your financial literacy. It will save you time by generating financial reports for you easily, with detailed analysis.
Following these and more ways as they come will help improve your financial literacy, as you’ll also need to have a financial road map – which would be a strategy for you to follow.