Financial literacy matters

‘Money makes the world go round’, ‘money talks’, ‘money matters’ are some the famous quotes that we have been hearing for long. Financial literacy plays a critical role in understanding the importance of income, saving and investment at individual, family, institutional and national level. Financially literate individuals take informed decisions and make good choices about income, investment, savings and borrowing. In contrast, financially illiterate people don’t have the understanding of money management and face challenges in finance related decisions in their daily chores which causes problems in managing expenditures even in basic needs like food, clothes, shelter, education and healthcare.

According to Global Financial Literacy Survey Report, financial literacy in Pakistan comes to something around 26% while developed countries such as Denmark, Sweden, Australia, Germany and the UK have around 70% plus financially literate population.

Unfortunately, our society is mostly consumer-oriented as the pattern of spending is irregular and excessive due to ill-informed personal and family budgeting, lack of income generation, lack of saving and shortage of investment opportunities. Economists and financial experts emphasise spending 50% on essentials, 30% on non-essentials and 20% on savings.

Other reasons behind Pakistan being a consumer-oriented society are the rising trend of being status conscious as people tend to emulate and compete each other in enhancing their lifestyle by constructing expensive houses, purchasing luxurious vehicles, and overspending on weddings, gifts, protocol and other unnecessary items just to impress others no matter whether they can afford them or not. And to fulfil their nonstop luxurious wishes, they don’t hesitate from taking loans from banks by mortgaging their properties. Even public office holders – MNAs, MPAs and government servants – get indulged in unfair means, looting, embezzlement of public money and misuse of government properties, as also mentioned in the media.

Uncontrolled borrowing also exists at the governmental level, with a result that our total public debt has surpassed 80% of our total GDP. Repeated borrowings are made from international financial institutions such as IMF, World Bank, Asian Development Bank as well as from friendly countries. The ever growing debt pile is raising our cost of debt servicing, thereby adding to annual expenditures – which the government only tries to meet through raise in the prices of utilities and increased taxation, adding to the financial burden of the common man, who in turn is forced to borrow from either the banks or the relatives.

The way forward is to carry out budgeting at individual, family and organisational level by determining certain steps. There is need to calculate expected incomes generated from multiple sources such as investment, salaries and daily wages. All unavoidable expenses on basic needs such as food items should be listed. Expenses related to education and healthcare, home rent, electricity and gas bills and other similar needs should be added up. All variable and non-essential expenditures such as on gifts, meals in restaurants, expenses on wedding and birthday invitations, and recreations should also be estimated. After all that is done, all fixed and variable expenditures need to be categorized, calculated separately, and broken down on a monthly basis for critical analysis.

Finally it is vital to evaluate your spending habits and check your financial goals to determine whether or not you are spending more than your expected income. In case of overspending, it is time for you to adjust your expenditures by cutting down your unessential and least important items. Otherwise, continuing to overspend can bring only frustration, agony and severe problems in handling personal, domestic and institutional matters. Hence, being financially literate is important for every individual, family and organisations in the context of managing money efficiently in day to day dealings by following the principles of budgeting in their true spirit.

Published in The Express Tribune, June 16^th, 2022.

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