Only financial literacy can protect your financial goals from all types of risks and help you live a happy retirement life within available financial resources. Here’s some important ways how financial literacy helps senior citizens make better decisions.

It focuses on the crucial things in investment and makes you a better investor

Financial literacy empowers senior citizens with tools and fundamentals so that they can make better decisions on investment. Financial literacy is all about focusing on the most important thing in any investment. One, what is the risk on investment; two, what is the return on investment; and three, what is the tax on returns?

When people speak about the FD interest rate due to its low-risk benefit, they miss a crucial part, i.e., taxes on the interest earned. Taxes are completely ignored when people talk about returns. If you factor in the interest, the FD rate often does not beat inflation.

So, once you focus on these three aspects while investing in any asset class, you will be able to take a better decision when you are retired.

Shows You The Power Of Compounding

The small difference in returns, which may look negligible, can make a huge difference in the future value of your investment. After retirement, you may live longer than you would have actually estimated, so it’s crucial to outperform inflation while investing. Even a difference of 1 per cent per annum in the rate of return can make a huge difference in your corpus size at the time of maturity. For example, if you invest Rs 100 in an FD at an interest rate of 8 per cent for 10-year tenure, on maturity it will turn to Rs 215. If the same investment can be done at the rate of 9 per cent, the amount will grow to Rs 237. If you keep it invested for another 5 years, the amounts will be Rs 317 and Rs 364, respectively. So, the corpus grows directly in proportion to the length of investment and return rate.

Teaches You Concept Of Budgeting

Financial literacy helps you focus on your available financial resource and make its optimal utilization. Thus, after retirement, you can ascertain how much funds you have and how to use it efficiently so that you can comfortably live the rest of your life.

In post-retirement life, there is no regular income. Hence any extra rupee earned from investment helps big in your financial well-being. While we tend to ignore such small differences, they make a huge difference between a life of comfort and a life in distress.

So, it is always better to equip yourself with financial knowledge. It does not take much effort to understand the rate of return, risk, budgeting and taxation. All you have to do is to open a book, enrol in a class, or switch on your computer or mobile!

The author is an Independent Financial Journalist