Why is Financial Education Important? 5/19/2020 Introduction There are many challenges which our entire society is currently facing due to COVID-19 pandemic and those challenges have imposed need to do differently some usual activities, to understand and adapt to specific situations and information, to use knowledge to keep us and other safe, but also to continue to be productive, responsible and useful members of the community. By utilizing online communication channels, the Central Bank of Bosnia and Herzegovina continues with the financial education of citizens, which is why we have prepared several informative – educational articles, filled with, what we believe, interesting, current and useful information and pieces of advice. We hope that soon we will be able to get back together implementing activities “face to face”, in the process of learning and promoting the importance of financial literacy and financial inclusion in Bosnia and Herzegovina. The importance of education Education is the basis for the development of each individual. By educating ourselves, not only do we acquire useful knowledge that enables us to live a better quality life, but we are also able to avoid difficulties or dangers. With the development of human society, the scope and complexity of the knowledge we need to be able to function in society, has grown exponentially. The use of any product and/or service entails being acquainted, at least with basic information about them. The use of certain foods rarely goes without being informed about the ingredients or some basic information about their usefulness or harmfulness to the body. Thus, a lot of information passes through us before we get to the price, the manufacturer etc. When using medicines, it is advisable to follow the advice of experts regarding the ingredients, use etc. There are plenty of examples on a daily basis, that show us the importance of education, information and learning in order to adequately cope with the challenges in life. How much do we know about financial products and services? As in the previously mentioned cases, the use of financial services also does not go without adequate prior knowledge. The financial market in Bosnia and Herzegovina offers users many products and services, without which we cannot imagine the life of a modern human being. The financial services industry is based on a very high level of legal regulations. With basic and simple products and services, as well as more complex products and services, the user concludes a contract before using them, thereby accepting certain obligations, but also acquiring certain rights. This obliges the user to inform him/herself of the characteristics, contractual obligations and other details regarding the responsible use of services, as well as the fulfilment of the obligation. Differences in types of accounts, types of loans, different interest rates, security instruments, interpretation of repayment plans, characteristics of mechanisms for enforced collection and protection of the rights of users of products and services are often incomprehensible terms for many citizens, especially those who did not have the opportunity to learn about them during formal education. In situations of changed life circumstances (loss of job, change in health status, natural disaster, and even the economic consequences of declaring an accident or a state of emergency) it is important to have and understand information and opportunities in a timely manner. Recently, because of the COVID-19 pandemic, banking system entities, the regulator and governments are trying to address the challenges and possible financial consequences that the pandemic leaves on the sector and the beneficiary. The importance of information and understanding mitigation mechanisms, as well as the importance of financial education, is especially emphasized now, to protect our financial position. The multitude of products and services available, the many concepts and meanings, and the fact that our choices make a big impact on our personal finances and financial behaviour, oblige us to inform and educate ourselves if we want to be a responsible financial services user. The importance of financial education in practice Understanding our rights and obligations will make it easier to make the right decision, be a better customer, and ultimately tailor the service or product to our financial capabilities or needs. It should also be borne in mind that the use of financial products and services is negotiable. In order to be able to be in a position to negotiate at all, it is essential to be aware of the basic concepts and possibilities. Below, we will summarize the importance of financial education, i.e. the possible questions and answers that need to be asked in order to choose the product or service more responsibly and in accordance with our needs. For what purpose do I need a loan and what do I need to know about the types of loans in relation to the purpose? I want to agree on an appropriate option for me, is it possible to negotiate? What is principal, and what is interest? What types of interest are there and what is the practical difference? What is the grace period? What does "restructuring" of a credit obligation mean? What is a "moratorium" and how can I find out if I qualify for this option? Why is the repayment period important, and how does it affect the total debt? What are loan security instruments, and what does it mean to activate them? What are the consequences of not fulfilling a contractual obligation? If I believe my user rights have been violated, who should I contact, and how can I try to protect them? Financial decisions, such as the decision to take a loan, have a long-term impact on our lives. Therefore, it is important to take all measures to ensure that we have chosen the best option for ourselves.
