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Financial Literacy and Essential Awareness

Intro
1. Financial Literacy is ability to understand and effectively use various money mgmt skills. These
skills may include personal asset mgmt, budgeting and investing. Financial literacy is the foundation of your
relationship with money, and it is a lifelong journey of learning. The earlier you start, the better off you will
be, because education is the key to success when it comes to money. After becoming financially literate
one can be able to navigate the challenging but critical waters of personal finance. People who are
financially literate are generally less vulnerable to financial fraud. A strong foundation of financial literacy
can help support various life goals, such as saving for education or retirement, using debt responsibly, and
running a business.

Aim
2. To impart essential financial education for a strengthening of money mgmt skills and understanding
of financial matters.

Seq
3. The seq being followed is:
a. Importance of Financial Literacy
b. Fundamental Components of Financial Literacy
c. Where to Gain Financial Literacy
d. Personal Financial Matters of Mil Offrs
e. National Financial Literacy Program
f. Recoms
g. Concl

Importance of Financial Literacy

4. In recent decades financial products and services have become increasingly widespread
throughout society. Whereas earlier generations may have purchased goods primarily in cash, today
various credit products are popular, such as credit and debit cards and electronic transfers. A 2019 survey
from the Federal Reserve Bank of San Francisco showed that consumers preferred cash payments in only
22% of transactions, favoring debit cards for 42% and credit cards for 29%. Other products, such as
mortgages, student loans, health insurance, and self-directed investment accounts, have also grown in
importance. This has made it even more imperative for individuals to understand how to use them
responsibly. Although there are many skills that might fall under the umbrella of financial literacy, popular
examples include household budgeting, learning how to manage and pay off debts, and evaluating the
tradeoffs between different credit and investment products. These skills often require at least a working
knowledge of key financial concepts.

5. Given the importance of finance in modern society, lacking financial literacy can be very damaging
to an individual’s long-term financial success. Unfortunately, research has shown that financial illiteracy is
very common, with the Financial Industry Regulatory Authority (FINRA) attributing it to 66% of Americans.
In Pakistan, insight in the financial sector is extremely low, with only 2.4% of the population having access
to credit from formal financial sources. Out of the total adult population of Pakistan, the financially excluded
population make up 53%. Being financially illiterate can lead to a number of pitfalls, such as being more
likely to accumulate unsustainable debt burdens, either through poor spending decisions or a lack of long-
term preparation. This in turn can lead to poor credit, bankruptcy, housing foreclosure, and other negative
consequences.

6. Being financially literate is a skill that brings forth an assortment of benefits that can improve the
standard of living for individuals through an increase in financial stability. Listed below are the assortment
of benefits of being financially literate:
a. Ability to make better financial decisions
b. Effective mgmt of money and debt

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c. Greater equipped to reach financial goals

d. Reduction of expenses through better regulation
e. Less financial stress and anxiety
f. Increase in ethical decision-making when selecting insurance, loans, investments, and
using a credit card
g. Effective creation of a structured budget

Fundamental Components of Financial Literacy

7. Financial literacy consists of several financial components and skills that allow an individual to gain
knowledge regarding the effective mgmt of money and debt.
a. Budgeting. In budgeting, there are four main uses for money that determine a budget:
spending, investing, saving, and giving away. Creating the right balance throughout the
primary uses of money allows individuals to better allocate their income, resulting in
financial security and prosperity. In general, a budget should be composed in a way that
pays off all existing debt while leaving money aside for saving and making beneficial
investments. You can manage budget by writing all down on Excel sheet, on paper, or with
a budgeting app.
b. Investing. To become financially literate, an individual must learn about key
components in regards to investing. Some of the components that should be learned to
ensure favorable investments are interest rates, price levels, diversification, risk mitigation,
and indexes. Learning about crucial investment components allows individuals to make
smarter financial decisions that may result in an increased inflow of income.
c. Borrowing. In most cases, almost every individual is required to borrow money at one
point in their life. To ensure borrowing is done effectively, an understanding of interest
rates, compound interest, time value of money, payment periods, and loan structure is
crucial. If the criteria above are understood sufficiently, an individual’s financial literacy will
increase, which will provide practical borrowing guidelines and reduce long-term financial
stress.
d. Taxation. Gaining knowledge about the different forms of taxation and how they
impact an individual’s net income is crucial for obtaining financial literacy. Whether it be
employment, investment, rental, inheritance, or unexpected, each source of income is
taxed differently. Awareness of the different income tax rates permits economic stability
and increases financial performance through income mgmt.
e. Personal Financial Mgmt. The most important criteria, personal financial mgmt,
includes an entire mix of all of the components listed above. Financial security is ensured
by balancing the mix of financial components above to solidify and increase investments
and savings while reducing borrowing and debt. Achieving an in-depth knowledge of the
financial components discussed above guarantees an increase in an individual’s financial
literacy.

Where to Gain Financial Literacy

8. Beyond gaining knowledge through word-of-mouth, there is an assortment of tools and online
modules that can increase an individual’s financial literacy.
a. National Financial Literacy Program
b. Read the Books and Magazines
c. Use Online Financial Mgmt Tools
(1) EconEdLink. Online financial lessons
(2) Money Smart. Free financial tools such as podcasts, lesson plans, and games
(3) MoneyWi$e. Free multilingual financial education
(4) InCharge. Online eBooks for educational purposes
(5) PomPak. Pakistan’s first e-learning financial literacy game
d. Listen to Money Podcasts
e. Take a Financial Literacy Course

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f. Read the Govt Resources

g. Break Your Consumer Mentality

Personal Financial Matters of Mil Offrs

9. All mil offrs are expected to regulate expenditure in order to live within means. They should try to
be as frugal as possible without impairing the expected standard of living.
a. Accounts. Offr should have account in a good bank and should get monthly
statement. He should never write a cheque for more than what he has in his bank or sign
a blank cheque. He should acknowledge the receipt of money, no matter from whom it
comes.
b. Economical Living. Offr should not indulge in luxuries. Entertainment should be kept
to minimum. If expenditure is more than resources, offr should consult with senior or CO.
However, borrowing money from subordinate is strictly forbidden
c. Financial Responsibility. Offr is responsible for public money, stores if placed under
his charge and he is liable for any losses occurred due to his neglect.
d. Savings and Investments. Offr should be in habit of saving. He should invest in
DSOP fund or other govt saving schemes. However, antecedents of private finance
companies should be checked thoroughly before investing savings in them.
e. Subscriptions and Other Bills. Mess bills must be paid on or before due date. All
subscriptions (DSOP fund, Housing Scheme etc) and all other bills (electricity, gas, internet
etc) must be paid punctually. If unable to pay any bill, inform the concerned authority well
within time with genuine reason.
f. Tax. An offr should be a tax filer and should keep all the receipts to show in tax returns.

National Financial Literacy Program

10. State Bank of Pakistan (SBP) launched the Pakistan’s first ever Nationwide Financial Literacy
Program (NFLP) on 20 Jan 2012 to promote financial inclusion through spreading financial education for
inclusive economic growth and stability across the country. The Program intends to target middle income
households and youth through building partnerships with education institutions in a phased manner. The
program envisions educating around 0.5 million low income households in first phase. The key objectives
of the program are:
a. Imparting knowledge and understanding of, financial concepts, banking/financial products
and services.
b. Develop skills and attitudes towards budgeting, savings, investment, debt mgmt, financial
negotiation, rights and obligations, etc.
c. Facilitate behavioral changes and practices to improve financial outcomes; including
financial wellbeing through increased savings, improved debt mgmt, perceived financial
stress or satisfaction.

11. There is similar program for youth by SBP which is called National Financial Literacy Program for
Youth (NFLP-Y). The program is targeting three age groups (School going Children: age 9-12 years;
Adolescent: age 13-17 years; Youth: age 18-29 years) across 45 selected districts of Pakistan including
GB & AJK. NFLP-Y aims at reaching out to 1.6 million children, adolescents and youth through classroom
trainings including 0.6 million on digital learning platform during five years i.e. 2018 - 2023.

Recoms
12. In addition to resources quoted above, following books are recommended for better understating
of finances:
a. I Will Teach You to Be Rich by Ramit Sethi
b. Rich Dad, Poor Dad by Robert Kiyosaki and Sharon Lechter
c. Your Money, Your Life by Joseph R. Dominguez, Monique Tilford, and Vicki Robin
d. Money Master the Game by Tony Robbins
e. Napkin Finance by Tina Hay

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f. The Everything Budgeting Book by Tere Stouffer

Concl
13. Financial literacy is essential art for a better lifestyle and will save you in events of economic crises
and financial downfall. An offrs should never be in a situation where his finances are not in his grasp and
his lack of financial awareness should not cause himself inconvenience in his professional competency and
personal affairs. He should keep himself informed about latest financial trends and should be in habit of
reading authentic financial literature.

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