Importance of Financial Literacy in Financial Freedom

The role of financial literacy in ensuring financial freedom is very important. Financial literacy enables individuals to understand the pros, cons, features, and benefits of various financial products and services. Cryptocurrencies in recent times have the potential to grant financial freedom to many underprivileged people. However, the basics of cryptocurrency can only be known if the users are financially literate. For example, if one wants to know about crypto wallets then having preliminary financial knowledge is essential. 

Essentials of Financial Literacy 

Financial literacy has several financial components and skills that individuals need to know such that they can manage their finances better. It also helps many to increase their income, reduce their debt, and gain from proper investments.

Taxation 

Taxation is a separate subject in Legal Studies, Accountancy, and Finance in many colleges and universities. The provisions of taxation vary across the world. Ordinary individuals only need to know the basics of taxation and how it affects their income. In the context of crypto users, they should know about the relevant taxation laws in their territory. This will help them to increase their financial performance and also manage their income better.

Investments

Investments are a key to financial freedom, but only when the investor has basic knowledge about the investment product. There are several kinds of financial products that people invest in. It can be term deposits, recurring deposits, mutual funds, gold, paper gold, stocks, bonds, cryptocurrencies, etc. Land and precious metals are also forms of investment. Each of these investments has a range of benefits, risks, opportunities, pros and cons. Therefore, basic financial literacy is necessary to ensure that these investments remain highly beneficial to the investors. Financial literacy also enables people to know various aspects of the market that largely determine the outcomes of many investments.

Budgeting and Borrowing

Financial literacy helps people to prevent wasteful expenditures through budgeting. Budgeting involves recording and tracking the continuous process of saving, spending, investing, and allotting money. Proper budgeting leads to more savings and allows financial security and prosperity. 

Financially literate people need to have preliminary knowledge of compound interest, the time value of money, loan conditions, and structure while borrowing. Borrowing, if done without adequate knowledge, can impede financial freedom. In the olden times, lack of financial literacy was also partially responsible for widespread poverty and the never-ending debt cycle of peasants and workers in the world. 

Advantages of Financial Literacy

Financial literacy offers a host of benefits and indirectly protects their financial freedom most of the time. These benefits include:

• To achieve financial freedom, making good decisions is of paramount importance
• Financial goals become more realistic
• Money management improves and debt levels reduce
• Leads to superior financial planning
• Improves ethical decision-making while selecting investment options
• Preparedness for financial emergencies improve

Also Read– Importance of Crypto Regulations in Decentralized Finance

Bottom Line

Financial freedom is nearly impossible without basic financial literacy. For most individuals, being financially free is not enough, but having better preparedness for emergencies secures that freedom. It also means that one needs to have adequate financial awareness about the market and common financial products. The advantage of being financially literate is useful to break free of the shackles of financial exploitation. It also has led many people to use decentralized finance such as cryptos. In a nutshell, it is an empowering quality and can improve much better decision-making.