Financial Literacy

Financial literacy is nothing but the ability to understand how to make informed and sound financial decisions so one can confidently manage and grow their money. Financial literacy is an ongoing process, it never stops. It helps you to identify the risk factors associated, to minimize the risk in investment, understanding different investment products and its suitability etc. Basically, financial literacy helps you to fine tune your decisions, therefore, it is always recommended to keep educating yourself about personal finance.

Why financial literacy is important?

• “I am feeling stuck in the ULIP plan sold to me by that bank RM”
• “The rate of return was so attractive that i didn’t pay attention to the risk factor”
• “I invested in this sector fund or NFO because its on the recommendation list of a good mutual fund website”
• “I am confused which best mutual fund i should choose, there are so many”

Above are just few examples we often come across.

Many investment products mis-selling is more due to lack of financial literacy and knowledge about products.

Financial literacy is important and it acts like a security. Learning about the basics of money and investments as an investor is important. It doesn’t mean to be an expert or to be a pro. It means one should be able to participate in the discussion, ask relevant questions, understand the product, process of investing, how investment will grow or will fetch returns, taxation etc.

Your own knowledge and awareness about finance can save you from making many mistakes rather than blaming it all on bank RMs. Knowledge is also a kind of security.

Unfortunately, there is no course or education given in the school about money and personal finance. I think, in general, the education system failed to understand or ignoring that the financial education needs to be taught in schools. Might be because, people think that financial education is not a necessary skill to live life. But financial education is equally important like other subjects(mathematics, science) in order to lead a good life because it teaches you about- how to earn, how to save, budgeting, investing, debt management and so on.

Financial literacy is a skill which is required to build a financially secure life. This skill can be learn by educating ourselves through various sources like by reading books, blogs, through own investments, other’s mistakes, participation in healthy discussion, sharing knowledge and encouraging others, regular discussion with family members (including kids) etc.

Ways to help you improve your financial knowledge:

• Read books: There are so many great books available out there on kindle, in library, book store. Dedicate a minimum of 1 or 2 hours each day/week to reading books about managing your money, investing, how to budget, personal finance etc.
• Join good online finance groups: You can find such groups online like bogleheads, finance forums or Facebook groups. In many of these groups, you can find real life experiences, issues, discussion and solutions about personal finance. sometimes with learning, its quite interesting to know about different investment options, taxation, strategies from people around the world.
• Read on Quora: Quora is a great source to learn and know about different topics including personal finance. Follow good writers, read more and learn.
• Start saving and investing yourself: learning from self mistakes and experiences is one of the best way to improve. Start to find out ways to earn money, saving more and investing in different options. Do budgeting, take help of online tools and gadgets etc.
• Share your experiences and learning: share your experiences or learnings about personal finance. Repeating them can remind you that you are going right way.
• Discuss about personal finance: with your family, friends, colleagues or relatives. Many times, you improve more when you get to know others experiences and mistakes. Though i don’t mean to invest your money based on their experiences or suggestions but to learn from others mistakes.
• Search and find out the personal finance case studies: There are many case studies ( some are real life) on personal finance available which one can study and learn in order to improve financial literacy.
• Some more ways which is quite common are Youtube, magazines, podcast etc.

Note:- Above article based on one of my Quora Answer.