A Loan – How It Affects Financial Literacy?

A Loan - How It Affects Financial LiteracyPeople tend to rush to have fun. If you offer 4-year-olds a choice: a piece of cake now or two exactly the same, but tomorrow, the vast majority will choose “today’s” cake. Postponing consumption for the future in order to save more is a difficult and inefficient strategy.

A loan is its opposite side. This is a way to increase your current consumption at the expense of goods and services for which you do not have the funds yet, paying for them with your future income. The payday loans Jackson increases the borrower’s current capabilities, but at the same time reduces tomorrow’s. Part of the future income will have to be used to pay off the loan. A payday loan is the transfer of consumption in time: from the future to the present. Now you are becoming “richer”, but you took this wealth not from the bank, but actually from your own future.

The fee for this “time machine” is a credit rate. Often it is a need to give a loan in one and a half, or two, or even multiple amounts. Therefore, the decision to take out a loan can determine your life for decades. So, the credit loading prevents many people from quitting their disfavored job and taking a break for a while. An apartment that is mortgaged can become an obstacle to moving to another city. If the loan is large and expensive, for example, up to half of the income is spent on its payment, then the borrower may have problems even with a slight change in the economic situation.

There are circumstances when it is definitely not worth taking a loan out:

  • if you are not 100% sure that what you are going to buy on credit;
  • if it will be difficult for you to live on income reduced by the amount of the monthly loan repayment;
  • if your income is falling, and there is a risk of losing the source of income during the loan repayment.

Since a payday loan is a loan issued from your own future, when making a decision about it, you need to imagine yourself by the end of the loan term. Let’s say you’re thinking about a 12-month loan for a honeymoon in Italy. And if it doesn’t quite succeed, will it annoy you to pay for it for a whole year? How likely is it that by the end of this period you will need money for something more important, for example, for the birth of a child? After all, it is very easy to drive yourself into financial overloading by a series of unsuccessful financial decisions, having fallen into the dependence from loans.

How to learn financial literacy?

No one is born a financially literate person.

To improve financial thinking in yourself, you need to devote many months to this. However, you can develop many positive changes in yourself within a few days. The theory of money can be studied quickly enough, you can also understand how the stock market or the bank works. And only when you understand how finance works, you will begin to move forward little by little.

In the past, financial literacy was even worse. The man was forced to work from morning to night in order to at least survive. Financial culture existed in its infancy. To become a wealthy person, it was necessary to use force. A lot has changed in our time and this is a great chance for each of us to succeed in life. There are a lot of materials in the public domain: books, courses and videos. Any information is available here and now. However, as we know, the availability of information simultaneously devalues it. You should clearly understand that you already have everything you need for financial prosperity, it remains only to find the right materials.

Perhaps the most important skill for developing financial literacy is discipline. More than 90% of people in the world spend money completely thoughtlessly and for this reason none of them will become a wealthy person. No one guarantees anything to the remaining 10%, but they still have more chances. By developing discipline in relation to financial habits, you increase your chances a thousandfold to retire from business in 10 years, have passive sources of income and do whatever you want.

Category: General

Tags: finance, financial, Michigan, payday loans