Areeba Ahmad Ansari

MS 1st

   Financial Literacy leads to Financial Inclusion 

1. Financial Literacy
Financial literacy refers to the knowledge and skills required to make informed financial
decisions. It includes understanding basic financial concepts such as budgeting, saving,
investing, credit management, and insurance. Financially literate individuals can understand
and manage their money effectively. Moreover, people who have financial literacy are more
resilient towards digital scams as compared to those who are financially illiterate. 

Benefits:

 Sense of freedom
 Attains your personal financial goals
 Helps to protect your family from financial uncertainties
 Provide an opportunity to obtain and protect your financial resources
 Helps in monitoring your spending and expenses
 Maintain budgets and plan your tax expenses.

i. Management of personal finance

PFM starts with goals, you need to identify them and then prepare your net worth statement
by subtracting your total liabilities from your assets. Practice with a budget, and write down
every single expense to get a clearer view of cash inflows and outflows with time. PFM also
includes investment, insurance, and saving plans. 

When it comes to personal finance management, it is important to consider various options

and weigh their pros and cons based on the investment horizon. This involves analyzing all
associated risks, determining where to invest and withdraw funds, and setting realistic return
expectations. Additionally, building an emergency fund is crucial, and it is recommended that
salaried individuals have a backup of at least eight months' worth of salary.

ii.  Strategies to improve personal financing

 Think economically: focus on maximizing efficiency and minimizing cost
 Understand the concept of time and compounding
 PACED decision-making model: The PACED decision-making model is a framework
that is commonly used to guide individuals or groups through a decision-making
process. The acronym "PACED" stands for Problem or Purpose, Alternative, Criteria,
Evaluation, and Decision making.
 Planning and tracking
 Investing in yourself
 Protecting your position
 iii. Investment decisions:

An investment decision is a process of evaluating various investment options and selecting

the most appropriate investment based on the investor's goals, risk tolerance, and financial
situation. The goal of an investment decision is to allocate financial resources in a way that
maximizes return while minimizing risk. Following are some steps to follow while making
investment decisions:

 Understand your risk appetite and control it

 Manage the investment horizon
 Develop a system
 Gradual risk exposures
 Maintain cut-off points
 Self-audit

iv. Pitfalls and scams:

  Savings and Spending: One of the biggest pitfalls of saving is the low-interest rates
offered by most savings accounts. Another pitfall of saving is not saving enough
money. One of the biggest pitfalls of spending is overspending, or spending more
money than one can afford. This can lead to credit card debt, high-interest loans, and
financial stress. Another pitfall of spending is impulse buying, or making purchases
on a whim without considering the long-term consequences. This can lead to buyer's
remorse and financial regret.
 Social Costs:
 Risk and return tradeoffs:
 Investors must consider the risk and return tradeoff when making investment
decisions. They can choose to invest in high-risk assets, such as stocks, with the
potential for higher returns, or they can choose to invest in lower-risk assets, such as
bonds, with lower potential returns.
 3D’s of protection (deter-detect-defense)
 Endorsement trap
 The endorsement trap can be a pitfall in financial literacy, as it can lead individuals to
make purchasing decisions based on false or misleading information.

2. Digital Fraud
o Phishing:
Phishing is a type of social engineering attack often used to steal user data, including login credentials
and credit card numbers.

o Vishing:
Stealing confidential or personal information through phone calls.

o ATM Skimming:
Skimming happens when devices placed illegally on fuel pumps, POS terminals, or ATMs capture
information or record cardholders' PINs. The information is used by criminals to make fake debit or
credit cards, which they then use to drain victims' accounts.
 o Impersonation attack:
An impersonation attack is a type of cyberattack in which the attacker pretends to be someone else,
such as a trusted person or entity, to deceive the victim into providing sensitive information, granting
access to restricted areas, or taking some other action that benefits the attacker.

o Malware/Ransomware:
Any software intentionally designed to disrupt a computer, server, or client to leak private
information, gain unauthorized access to information or systems, or unknowingly interferes with the
user’s computer and privacy. While ransomware, is a form of malware that locks the user out of their
files or their device, then demands a payment to restore access.

o Hijacking:
When a hacker takes control of a user’s computer or mobile devices to gain access to or steal, data or
other financial or personal information.

o E-commerce frauds
Is an umbrella term for any type of online fraud with the goal of personal or financial gain. It’s a
criminal act in which scammers steal money.

o Malicious application:
Use of unknown mobile applications results in financial loss as the fraudster gains complete access to
the device.

o Compromising credentials:
Use search engines to obtain customer care contact details of financial service providers and end up
contacting an imposter or fraud.

o Scam through QR code:

QR codes have embedded account details in them to transfer the amount to a particular account.

Conclusion:
In conclusion, financial literacy is crucial for individuals to achieve financial stability, security, and
success in their personal and professional lives. It is a life skill that everyone should strive to acquire
and continuously improve upon throughout their lifetime.