With paradigms of conventional financial literacy shifting to the digitized era, the impact of digitization on financial literacy has been profound. Whether it comes to managing funds, planning for retirement, or allocating funds for your kids’ education, you can’t separate digital and financial literacy. Even if you are financially literate, the lack of digital literacy exposes you to online vulnerabilities.
The Federal Reserve Bank of San Francisco survey in 2021 revealed that credit cards account for 28% of all payments made. Just 20% of payments were being made using cash. This statistic speaks a ton about where digital financial literacy stands in the US.
The digital era requires financially literate people to adapt to fresh technologies. While you are already aware of the concepts of retirement planning, insurance, and compound interest, digital financial literacy calls for a more inclusive approach.
However, what if you fail to draw your line of defense against cyber fraud? A study reveals that in 2022, 75% of Americans were concerned about having their credit card or financial credentials stolen by hackers.
Evidently, the digital era calls for more than financial literacy to remain secure in money handling.
What is financial literacy, and why is it important?
Financial literacy encompasses the concept that an individual would be informed enough to manage finances by making the right decisions. These decisions include activities related to budgeting, investing, borrowing, tax planning, and taxation. To ensure long-term financial prosperity, you cannot possibly overlook financial literacy. The sad story is 66% of Americans still experience some kind of financial illiteracy.
Financial literacy is important since it enables individuals to make confident financial decisions. In a nutshell, financially literate citizens remain better poised to tackle monetary obstacles. This way, they can mitigate their financial distress.
Whether you approach a financial decision like investment or deal with credit cards, mortgages, or student loans, financial literacy keeps you on the productive end.
Here’s why financial literacy matters, whether you operate your finances digitally or physically.
- Financial literacy enables you to understand your expenses and earnings transparently.
- It helps to avoid getting into debt and repaying the existing ones.
- Financial literacy prepares you to tackle financial obstacles.
- You get to make better financial decisions with adequate knowledge.
- Financial literacy is critical for ensuring better health conditions.
- With proper financial knowledge, you can plan your retirement securely.
Financially illiterate millennials might be digitally literate. However, this simply leads them to get into debt. A study reveals that 44% of millennials have excessive mortgage or student loan debt. However, a digitally and financially literate individual habitually refrains from getting into debt traps.
What does digital financial literacy mean?
Digital financial literacy is the ability to manage financial services and money using digital devices. Digitally literate individuals should have basic financial literacy before adapting to the virtual financial environment.
With digital literacy about finances, you gain adequate knowledge to handle monetary products with confidence. Think of e-payments, net banking, online share trading, virtual investment platforms, crypto investments, and internet-based insurance. Unless you carry adequate knowledge of finances as well as digital technologies, you remain susceptible to online thefts.
Again, Peer-to-Peer (P2P) lending and crowdfunding are increasingly gaining popularity in the digital age. Before indulging in these financial activities, you need serious digital knowledge. The digital era has significantly impacted the conscious decision-making abilities of individuals.
Whether you run a business or happen to be an employee, there’s no scope to dodge digital financial services. In the digital era, you need to adopt a defensive stance against potential fraud.
Digital financial services come under three broad categories.
Asset management: Managing assets digitally include dealing with online brokers, carrying out transactions through internet banking, counting on AI advisors, mobile trading, personal finance management, and trading crypto assets.
Making payments: In the digital era, you have access to online payment options like mobile wallets, electronic money, and remittance services.
Alternative finance: Digitally literate people can indulge in internet-based insurance services, online balance sheet lending, crowdfunding, invoice and supply chain finance, and P2P lending.
How can digital financial literacy influence your economic portfolio?
Successful citizens in the modern era prioritize digital literacy as much as financial literacy. Particularly, young adults and teens are proactive about mastering digital skills to consolidate their wealth portfolio. Falling victims to online or banking frauds simply erode wealth. No wonder digital literacy can go a long way in influencing your long-term economic portfolio.
Let’s understand what makes digital financial literacy so vital for millennials and the subsequent generations.
1. Participating in digital savings and investment options
With digital finance, individuals now have much broader access to savings options. Banks are coming up with a plethora of digital financial products. The positive aspect of these products is that you need not physically visit your branch to open or access your accounts. With virtual banking mechanisms available, investors can save time and effort.
Moreover, digital financial products are growing in complexity compared to what financial products were before. A slight mistake can affect your long-term savings adversely. With proper digital financial literacy, investors can make confident decisions. This translates to a positive impact on your finances in the long term.
2. Keep your finances safe from expensive blunders and frauds
Being aware of the best banking and financial practices in the digital era strengthens your defense against online fraud and blunders. For instance, a digitally literate person with basic knowledge of finances is less likely to fall victim to password theft or phishing. Moreover, adequate knowledge of digital finances can secure your funds, digital assets like cryptocurrency, and financial information.
3. Enjoy better money management with digital skills
Over the years, the share of digital consumer services has been increasing across the globe. For instance, people are now more obsessed with online gambling or remote shopping than a decade ago. All these financial activities call for digital money management skills.
An organized approach to managing digital assets can contribute to your long-term wealth portfolio. This also requires financially literate individuals to be responsible with money handling in the digital world.
With the right approach, even shopping online can help you save money. How about capitalizing on the best credit card deals or using promo codes during online shopping to curtail expenses? Over the year, you can save hundreds of dollars with the right money management approach over digital platforms. It simply takes time to master the best strategies and put aside funds for the future.
How do digital money management skills strengthen your finances?
Businesses and individuals can largely bank on the benefits of digital financial management. Let’s take a detailed look at how digital money management skills can put your finances on track.
1. Access to information in real time
Digital literacy in financial aspects enables individuals to access information in real time. Whether it’s checking your bank statement online or scrolling through share prices, timely information can facilitate effective decision-making. In the digital world, you must be comfortable with smart tools and software to use the available information and make financial decisions accordingly.
2. Enjoy the freedom to make financial decisions
With digital financial literacy comes the freedom to manage your funds at any hour of your choice. Presently, people invest in stocks or cryptos on the go, and business owners make transactions at odd hours after banks are closed.
One of the best perks of financial literacy, along with digital knowledge, is your liberty to check financial reports from any location. You simply need a mobile or computer device along with an internet connection to stay abreast of your finances.
Coordinating with your accountant or financial advisor has also become easier than ever before with digital financial skills. For instance, screen-sharing technology can help multiple people connect virtually over the same financial discussion.
3. Integrating business operations with finance management
With the financial sector rapidly digitizing, adequate knowledge of digital finances can help entrepreneurs integrate financial management with other operations. For instance, successful firms deploy smart payroll management tools.
Besides, business owners should be aware of accounting, invoicing, and inventory management software. The more comfortable you grow with these tools, the faster you can scale your operations up.
Moreover, evaluating financial reports generated by apps and intelligent systems also requires adequate digital financial literacy. This way, you can capitalize on data analytics to make intelligent decisions.
Impact of the digital era on financial literacy
Digital literacy is much more about learning how to use mobile apps or websites to make online payments or indulge in share trading. Citizens in the digital era should be aware of digital financial risks or online vulnerabilities as they involve themselves in financial activities. Evidently, digital financial systems present you with a multiplicity of online threats.
Let’s take a look at these statistics to understand the threats associated with digital banking.
- In 2020, 46% of global cyberattacks targeted the US. This is more than twice as high as any other nation.
- In 2020, cases of data breaches in the financial sector were the second highest number, just after the government sector.
- The 2022 Phishing report reveals that more than 43% of banking employees operating in large companies fail to pass a phishing test.
Unless a financially literate individual is also digitally knowledgeable, chances of falling victim to cyber fraud remain pretty high.
What does digital literacy mean for your financial security?
Digital financial literacy involves a proper understanding of banking and investment threats in the era of virtual transactions. Banks and financial institutions have been hosting awareness programs to help clients strengthen their stance against online banking fraud. An informed, financially literate individual can maintain resilience against attempted online crimes.
Have a look at what you can do to stay secure from banking fraud.
Your access to digital financial services largely exposes you to phishing attacks. Other attack modules include SIM card swap, hacking, malware installation, and spyware.
Uncalculated borrowing through digital platforms can also expose you to risks like high interest and over-borrowing.
In the digital era, financially literate individuals should master strategies to avoid potential risks. For instance, refrain from sharing your credit card details or PIN over calls. Limiting your credit card transaction amount can also lower your risk profile.
Try to erase all types of digital footprints while dealing with money matters. Every transaction you carry out digitally leaves a trail. This footprint keeps growing prominent as you keep exploring social media platforms or browsing the internet. Digital financial literacy ensures that you don’t leave any trails for cybercriminals to pick up the cue.
Also, digitally literate individuals grow defensive about the financial information they share. Whether it’s your bank, a phone call, or next-door neighbor, the digital era has significantly impacted financial literacy.
It pays to be careful about where you purchase goods online or how frequently you use your credit cards.
Being conscious about what information you share through digital channels with financial institutions also defines your line of defense.
At a time when smart technologies are taking over financial management, it pays to remain digitally as well as financially literate. Currently, financial information is more accessible than ever before. Once you adopt a defensive stance against online threats, capitalizing on the available information becomes easy!
With banking and financial apps now available at your fingertips, financial management over digitized platforms are easier than you think. The digital era has influenced financial literacy for good. But still, there’s a door for a sizable population to educate themselves financially.
In this blog, we have highlighted the potential threats of digital transactions. However, this shouldn’t discourage investors from participating in online investments or financial activities. Rather than shying away from advanced financial technologies, why not explore your opportunities and capitalize on them?