Having a higher level of financial capability offers numerous benefits and contributes to an individual financial well-being and sustainability. Financial sustainability and well-being are achieved when personal financial resources are managed in a manner that ensures sufficient funds to meet personal financial obligations and needs over a person’s lifespan and through changes in financial conditions. So, financial capability is fundamental to achieving this goal because more financially literate individuals are more inclined to financial planning, budgeting, saving, investing, and are less likely to have costly debt.
Indeed, individuals with higher levels of financial capability also have constant financial behaviour toward financial planning, budgeting, saving and investing. They are aware of financial instruments and products, which allows them to manage their debt better, utilise lower-cost methods of borrowing, judge their debt position more effectively, and are less likely to incur excessive debt. They are less likely to become trapped in the greedy behaviour of financial service providers by making better financial decisions and managing their credit scores (a measure of an individual’s creditworthiness based on credit history).
While financial literacy can clearly be a factor in avoiding financial risks, it can also be important for taking advantage of financial opportunities, which could be aided by a better credit score. And so, some important benefits of greater financial capability include clever saving and investment decision habits, better debt management, better retirement planning, higher participation in stock market, and greater wealth accumulation. These benefits improve individuals' financial well-being because they help them to feel in control of their day-to-day finances, guide them in establishing emergency funds to absorb financial shocks, help them to achieve their financial goals, and enhance their sense of financial freedom. Learn more !