What are the negative effects of financial literacy? | 3 Answers from Research papers (2024)

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What are the negative effects of financial literacy? ›

Financial literacy can have negative effects on individuals' financial behaviors and attitudes. People with high levels of financial literacy tend to take too many risks, overborrow, and hold naive financial attitudes, which can lead to reckless behavior in certain financial aspects .

Financial literacy is universally essential for all students, regardless of their background or future career path. It equips them with the knowledge and skills necessary to navigate the complexities of personal finance, make informed decisions, and achieve financial security.

Financial literacy gives individuals the life skills that yield financial goal achievement, wealth growth, and overall well-being and happiness. By developing financial literacy skills, you empower yourself, securing a financial future through informed financial decisions.

Lack of financial literacy cost 15% of adults at least $10,000 in 2022. Here's how the rest fared. The share of people who said not being financially literate cost them more than $10,000 is up from 11% in 2021, according to a new report.

Being financially literate helps ensure you'll have the skills needed to handle such tasks as budgeting, managing bills, investing money and saving for retirement and other financial goals.

Financial literacy fails because it almost universally addresses only one part of the problem: math and mechanics. FinLit (as it's sometimes called) focuses on facts and figures while largely ignoring behavior.

In conclusion, financial literacy has both its advantages and disadvantages. On the one hand, being financially literate can help individuals make more informed decisions with their money and avoid debt. On the other hand, financial literacy can also lead to people becoming more materialistic and obsessed with money.

By learning how to save, invest, and borrow wisely, people can increase their income, build their assets, and reduce their vulnerability. According to the Philippine Institute for Development Studies (PIDS), "Financial inclusion helps individuals and small businesses invest for the future.

Many studies have demonstrated that persons with higher financial literacy are more likely to participate in desirable financial behaviors, such as deposits, mutual funds, and stocks, than those with lower financial literacy (Yang et al., 2022).

Variables that influence financial literacy are (1) Personal Socio- demographic characteristics, (2) Financial Knowledge, (3) Financial Behaviour, (4) Financial Attitude, and (5) Financial Training.

How does financial literacy affect financial performance? ›

Managers/owners with financial literacy skills understand business-related financial concepts, including debt, savings, takaful, insurance, and investment, which ensure the good performance of their business.

A study by the World Bank found that countries with higher levels of financial literacy had higher levels of saving, investment and economic growth.

Lower savings and investments since financially illiterate individuals often lack knowledge to make informed decisions about savings and investing, which can have an impact on economic growth at the national level, and limited access to financial services.

Only 57% of adults in the United States are financially literate.

Students completing a co-op placement may also be asked to complete a qualification test to validate their hard skills such as financial literacy. Hard skills refer to acquired and learned skills that are used to complete a technical job or academic task.

Financial capability has a positive, long-term effect on health, regardless of race or ethnicity, gender, income, education, or employment. This is particularly true for mental health, with financial capability serving as a protective factor against high stress, anxiety and depression.

Financial literacy is needed by everyone, including womenpreneur because not only they have to be able to manage their personal finance, they should also manage their business finance. Financially literate people are more likely to get access to external funding and to develop their business.

Several studies have shown that students with good financial literacy tend to be good spenders, managing their money well in terms of academic, food, and personal needs .