Many Kenyans have little understanding of finances underscoring why many people are struggling with saving and investing.
It is more challenging to gain control over your finances and appreciate the process of saving for the future if you are not financially literate.
The term ‘financial literacy’ refers to taking the time to understand the world of finances a little more and thinking about how you can save money through budgeting.
It is also the cognitive understanding of financial components and skills such as budgeting, investing, borrowing, taxation and personal financial management.
Budgeting is the fundamental step in achieving financial literacy and by extension, reaching financial security and freedom.
Budgeting is the process of creating a plan to spend and invest your hard-earned money wisely to meet your personal and financial goals in life.
Financial literacy level of individuals affects the awareness as well as investment preferences of salaried individuals towards financial products.
Learning about crucial investment components allows individuals to make smarter financial decisions that may result in an increased inflow of income.
Considering the relationship between financial literacy and borrowing behaviour, increase in financial literacy of financial consumers may have important implications in the prevention of excessive borrowing.
Raising tax awareness is also linked to enhancement of financial literacy among various age and gender groups with different tax status.
Tax awareness involves increasing the population’s knowledge about tax legislation and identifying the factors preventing people from paying their taxes on time and in full.
Personal financial management
Financial literacy positively affects personal finance management which leads to a higher investment practice, more diversified savings and a lower debt percentage.
Poor financial planning habits prompts people to use their savings before they get the chance to retire, or reach retirement age.
Obtaining financial literacy is one of the most important things an individual can do to ensure prolonged financial stability.
Financial literacy is not an inherently bad thing. Advocates have pitched it as a strategy to break the generational cycle of poverty, usually aiming to share resources and information with young people and low-income communities.