21.6.1 Consumer literacy Consumer literacy is a combination of knowledge and skills that consumers use to make informed decisions. It includes our proficiency in reading and writing, as well as the ability to manage one’s identity. Consumer literacy is important because it helps us — consumers — make informed decisions about our ownmoney. We will, at some point, need to make decisions about: • saving money • borrowing money and using credit • comparing prices • making good purchases • understanding consumer law and rights • understanding product safety. Some factors that can affect consumer literacy include: • age • education
• income • culture • language • disability.
21.6.2 The importance of financial literacy Financial literacy is the ability to understand and use financial skills and concepts to make informed decisions about money. It includes the following: • Understanding financial products: Knowing how to compare prices, make good purchases, and understand consumer rights • Managing risk and reward: Understanding the trade-off between risk and return, and how to protect finances through insurance, savings and superannuation • Budgeting and saving: Learning how to create a budget, track spending and plan for retirement
• Managing debt: Understanding how to manage debt responsibly • Financial planning: Knowing how to set and achieve financial goals • Financial awareness: Being aware of unethical financial practices and scams • Seeking professional advice: Knowing when to seek professional financial advice
Financial literacy can help people avoid poor financial decisions, achieve financial stability, and support life goals. It’s important in today’s society, where people face many financial challenges, such as student loans, mortgages, credit cards and investments . Financial literacy can be improved through reading, conducting research before buying, subscribing to financial content, or talking to a financial professional.
Did you know? The term ‘smart consumer’ is used to describe someone who is both consumer and financially literature. Meaning that they understand how to navigate the marketplace effectively and also how to manage their own finances.
TOPIC21 Understanding tax and consumer literacy 617
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