Financial Literacy as the Skill That Reduces Stress and Boosts Productivity
Introduction
The constant development of technology and globalization have given consumers the ability to shop and spend money with a tap on the screen from the comfort of their own home, which is a far cry from the times when purchases required much more effort, like physically going to a store or a market just to get a chance of spending your money. This statement is further supported by the surge of subscription-based models, online gambling and the accessibility of credit cards and loans, that help expose consumers to additional ways of spending their money and influence their financial behavior, which can be defined as the capability to understand overall impacts of financial decisions on one's circumstances and make the right decisions related to cash management, precautions and budget planning. Some may view this as a convenience, while others may view it as a risk, but one thing is certain: the ability to manage one’s personal finances is a skill that cannot be overlooked.
Taking all of these factors into account, along with dynamic economic circumstances, inflation, and rising living costs, the topic of financial literacy, which is, according to OECD reports, defined as the knowledge and understanding of financial concepts and risks, and the skills, motivation and confidence to apply such knowledge and understanding in order to make effective decisions across a range of financial contexts, to improve the financial well-being of individuals and society, and to enable participation in economic life. As you can see, this is not just about budgeting and saving money, but more like a management skill that everyone can and should possess.
Money Decisions and Everyday Behavior
A lot of our everyday decisions connected to spending and saving money are influenced by financial literacy. Researchers found out that financial knowledge affects financial behavior, and that self-confidence and financial attitudes play a key role in how knowledge turns into action. Other studies also show a strong connection between education and positive financial behaviors such as saving, retirement planning, allocating assets and managing credit. Both formal and informal education shape responsible financial behavior and help you understand money and make better decisions.
Money Stress and Well-Being
The more you know about finances, the less you are going to panic. Financial stress is something that can be seen as a strong link between financial literacy and financial well-being, which is described as the ability to meet obligations, feel secure about your future, and enjoy life by managing daily expenses and working towards your long-term goals.
Many people are still very far from this point, especially when you take into account factors like inflation and credit/loan obligations that create constant pressure. Financial knowledge helps by providing clarity about your own personal cash flow.
Work-Life Balance Starts with Financial Control
Unfortunately, financial problems rarely stay at home, and are more like a black cloud that follows you everywhere you go, including work, ultimately affecting your concentration and performance.
Some employees that feel financial pressure make more mistakes and struggle to focus, while others work overtime and need to take multiple jobs just to cover their basic expenses. Studies show that financial literacy empowers employees, because it reduces stress, improves focus, supports better decision making, and promotes a healthier work-life balance. Managing your money the right way makes you feel safer, and you spend less energy worrying about bills and more energy on your work, family, and health.
Financial education and organizational context
Organizations today understand more and more that their employees are more than just work force, but rather that they are key resources, or human capital. According to Becker (1964), employees represent a form of capital whose value increases when organizations invest into their skills and knowledge, and providing them with information and involving them in decision-making increases their competence, motivation and capacity to contribute to organizational performance. “These activities are called investments in human capital…all these investments improve skills, knowledge, or health, and thereby raise money or psychic incomes” (Becker, 1964), which reinforces the idea that employees can fully contribute to organizational goals if they are provided adequate information, understanding, and education.
This includes transparent communication and participation in decisions, along with access to organizational knowledge and study programs so they can “increase their productivity by learning new skills and perfecting old ones while on the job” (Becker, 1964). By investing in the knowledge of their employees, employers may notice an increase in morale and performance.
What You Can Do Starting Today
Hopefully, after reading this article, you realize that financial literacy is an essential life skill that shapes behavior, reduces stress, and boosts work performance and financial security. I recommend you start tracking your monthly income and expenses. Look at the past three to four days. Remember every piece of clothing you purchased, coffee you drank, meal you’ve had, and put the costs on a piece of paper. Monthly subscriptions to services that you forgot about count as well. You might be surprised by the amount, because you thought that it would be much smaller.
Then you can create a simple budget plan to follow. How much you are going to spend on food orders, going out, hobbies, and how much you need to save up for expenses such as rent and bills. Building an emergency fund that can cover three months’ worth of these types of expenses might be a good decision but might also take time.
Understand how credit works before using it. Sure, a car might be a necessity in the modern day, and taking out a loan in order to purchase it can be the right move, especially if you plan on using the car for work or in a way that is going to make it easier for you to earn money. But, if that car costs 30,000BAM, and your monthly salary is below average, ask yourself: “Is this really a necessity, or more of a psychological need for me?”, and answer it honestly.
Invest time in learning about financial literacy, whether it be through courses, or online articles. No harm comes from learning, especially about topics like financial literacy.
Over time, you will have more control over your money and feel less stressed. When stress decreases, focus improves. When focus improves, both your professional and personal life benefit.
Financial literacy is more than just money management. It is a tool for stability and long-term growth.
Anel Forić
References
Becker, G. S. (1964). Human capital: A theoretical and empirical analysis, with special reference to education. National Bureau of Economic Research.
OECD. (2014). PISA 2012 results: Students and money (Volume VI): Financial literacy skills for the 21st century. OECD Publishing. https://doi.org/10.1787/9789264208094-en
