Definition and Importance of Financial Literacy in the Digital Era
Definition and Importance of Financial Literacy in the Digital Era
Today, almost everyone increasingly relies on digital technology advancements to support their lives. In its development, digital technology has also become an important part of the financial services industry. Offerings, account openings, and the purchase of financial products and services can be done digitally. Therefore, individuals need to have adequate knowledge and skills in using digital technology correctly, properly, and safely, including financial literacy in the digital era.
There are many definitions explaining the term financial literacy. So, what exactly is financial literacy?
What is Financial Literacy?
According to the Big Indonesian Dictionary (KBBI), literacy is defined as the ability to read and write. Meanwhile, financial means pertaining to finance. So, overall, financial literacy is an individual or someone who has the ability to manage, invest, and organize finances wisely and according to their needs for the sustainability and prosperity of their lives. Financial literacy is one of the keys to economic adaptation to the new era in the digital age to survive. Every individual who earns income from their work is required to be able to understand financial literacy.
According to the Financial Services Authority (OJK), financial literacy is knowledge, skills, and beliefs that influence attitudes and behaviors to improve the quality of decision-making and financial management in order to achieve prosperity. As reported from the OJK Survey Data conducted in 2019, Indonesia's financial literacy rate rose from 21.84% in 2013 to 38.03% by the end of 2019. This means that awareness of the importance of understanding financial literacy among the public has increased significantly. However, the journey to raise awareness of the importance of financial literacy among a wider audience is still long.
Types of Financial Literacy Levels
There are at least four types of financial literacy levels for the Indonesian population according to the OJK, namely:
- Well literate: Individuals who have knowledge and confidence about financial institutions and financial products and services, including features, benefits and risks, rights and obligations related to financial products and services, and have skills in using financial products and services.
- Sufficient literate: Individuals who have knowledge and confidence about financial institutions and financial products and services, including features, benefits and risks, rights and obligations related to financial products and services.
- Less literate: Individuals who have knowledge and confidence about financial institutions, products, and financial services.
- Not literate: Individuals who do not have knowledge and confidence in financial institutions and financial products and services, and do not have skills in using financial products and services.
Why is Financial Literacy Skill Needed?
In the digital era, financial literacy is very important for individuals in making decisions and managing finances. Everyone must be able to find the right solutions regarding how financial conditions and economies can survive during the digital era through financial literacy. Here are some reasons why financial literacy skills are needed:
- To be able to know financial institutions, as well as their products and services.
- By having financial literacy skills, individuals will be able to compile financial reports from income and expenses effectively and efficiently.
3. Assisting in making good decisions on how to invest their money. - Assisting in making good decisions on how to invest their money.
- To be able to know and understand the prices of basic needs in the market, currency values, gold prices, oil prices, and others.
- To be able to plan income and personal expenses budgets optimally.
- By having financial literacy skills, individuals will be able to survive in the midst of a suddenly weakening economy.
Financial Literacy Has Many Benefits!
In today's technological era, financial literacy must be continuously improved so that you can understand various financial products and services available. Moreover, so that you can utilize and manage those products well to achieve maximum benefits. Financial literacy also includes financial management, savings and investment, as well as managing assets owned to secure the future.
Having good financial literacy is very important. Without it, it is very difficult to control expenses and sometimes, makes salaries continuously deficit. This will certainly affect your financial well-being. With good financial literacy, you will find it easier to make smart financial decisions. Conversely, lack of financial literacy will lead you into endless debt.
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