The Empowering Impact of Basic Financial Literacy

Financial Literacy

Financial Literacy is the cornerstone of accomplishing your goals, and to navigate the financial landscape. We invite Kenyans to discover the importance of some key insights, learn critical budgeting techniques, understand the role of credit reports and pick up valuable tips for improving your credit health.

For consumers grown enough to be earning, borrowing or spending money or using credit in the modern economy, financial literacy is a life skill essential to navigating the complex world of personal finance. It can empower you to make informed decisions, leading to sound financial stability and improved financial freedom.

Creating a simple budget

The first step toward financial literacy is learning how to create a simple budget. This involves listing your income and expenses, subtracting the latter from the former, setting realistic financial goals and adjusting your spending to stay within your means.

The 50/30/20 rule

A popular budgeting technique is the 50/30/20 rule, which suggests allocating 50% of your income to needs, 30% to wants and 20% toward savings or paying off debt. 

This simple budgeting method can help streamline your financial planning to better ensure you're covering all bases. It can also give you a realistic sense of where your money is going, and how and where you can improve your financial situation.

Understanding bank accounts

It's crucial to know how your bank accounts work. This includes what charges you’re paying on your transactional accounts — and the interest rates you’re being charged on loan accounts or earning on savings accounts. 

Familiarising yourself with these can help lead to more beneficial financial decisions — especially when it comes to the impact of compound interest.

Understanding compound interest

Compound interest plays a powerful role in both savings and debt. Simply put, it's the interest on your interest and can significantly affect the growth of your savings or increase of your debt over time.

Why your credit report is important

Your credit report is a vital part of your financial profile. It shows how you've managed your money, paid off loans and handled credit in the past. It's critical for securing future loans and getting the best possible terms. The higher your credit score, the more chance you have of being awarded more credit at better rates.

Spotting and disputing fraud

Another reason to regularly check your credit report is to look for signs of fraud or incorrect information. The same applies to checking your bank and other financial statements. Understanding the channels to dispute any discrepancies is key to protecting your financial health. 

Improving your credit health

Enhancing your credit well-being can depend on your starting point. For those with no credit history, opening a small credit account — such as a clothing, retail store or mobile account — and managing it responsibly can help you build a positive credit history. 

If you already have a credit history, but find your credit report contains any negative information that contributes to a lower credit score, don’t worry. Strategies like regularly paying more than the minimum due on your credit and loan accounts over time can help improve your credit score. Maintaining your budget and adjusting your lifestyle to cut down on expenses can also help turn things around.

Take control today

Becoming financially literate is about understanding how to manage your money to help secure your financial future and unlocking opportunities to better leverage credit to achieve your goals. 

Starting your financial literacy journey today can help pave the way for a brighter, more secure tomorrow.

Every Kenyan is entitled to one free credit report per year — download the Nipashe app or text your name to 21272

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