Developing and Increasing your Financial Literacy | Your key to Financial Security and Freedom

For starters, financial literacy does not refer to formal education in finance. So, relax! I know you hated maths in school :) so its not about acquiring a Cert, Dip, Bsc, Msc or PhD in finance or accounting.

financial literacy

However, it refers to the knowledge necessary for managing personal finances to achieve your financial goals. This includes an understanding of how to manage your money well, minimize financial risks, invest prudently and use credit responsibly.

The most fundamental reason why people should strive to become more financially literate is to help them to reach their personal financial goals. Whatever the specific goal, the payoff to financial literacy is an improved standard of living and a sense of confidence about the future. - Jamie B. Stewart, Jr.

For most people, having a job and earning a regular income is the key to their personal financial security. Yet being able to earn an income does not equal to being able to make smart judgments about what to do with money once it’s in your hands.

Making thoughtful and informed decisions about your personal finances is more important now than ever. The recent global financial crisis is the result of many complex factors; but close to the source of the problem is the misinformed financially illiterate consumer-you and me.

Most people acquire their financial knowledge arbitrarily, by trial and error. So, you might have grown up not learning any principles of personal finance systematically from your parents. Instead, you have picked up bits and pieces in school, from the media, and perhaps through your business dealings with financial service providers. Often, the information you acquire is misleading or fraught with errors.

The rich know that it is financial intelligence, not money, that ultimately makes you rich. - Robert Kiyosaki

Why Your Financial Literacy Level Matters?

There are several reasons that necessitate the need for you to be concerned about your financial literacy level. But before we get to that, I would like to say something about the brain.

“How is it related to this?" ...Relaaaaax! Just hear me out first.

Am not an expert on the workings of the brain but I learnt something very useful on how the brain works. When you have a problem, the brain processes a solution from the related info stored in it. If there isn’t the required info you end up in a situation where you have problems with no answers. That’s when you seek info from other sources (God, people and books) to help you get the answers.

If you lack knowledge of a certain subject, you will not have answers to problems related to that subject because your brain has no info it requires to work with.

So, to relate this to finances, you cannot make smart financial decisions if your brain is not equipped with the necessary financial info. You have money problems because you can’t come up with answers to those problems. Your brain doesn’t have the required info. But once you get the required financial info… eureka! A solution comes up.

You get me now? ...right! Okay, here are the reasons I wanted to share with you:

  1. To make smart financial decisions: The recent financial recession is reason enough to get you understand the importance of financial literacy. Most people have lost jobs, homes, retirement savings, families, e.t.c. There are several contributing economic factors to that but bad financial decisions by consumers are also a major cause of it.
  2. To understand complex financial products: There are more choices of financial services firms and more complex financial products coupled with increased conflicting views in the media concerning these financial services firms and products. This complicates financial decision making which can make creating and following a financial path difficult.
  3. To invest intelligently: If ever you would want to be an intelligent investor then learn how to invest like one. There are many investment options out there. When you increase your financial literacy you can make smart investment decisions on your own. Even if you will employ the services of an investment expert, having the basic knowledge of the investment(s) being recommended to you can be of great help.

    There are stories of celebrities suing their financial advisors for lying, stealing and for making bad investment choices. Don’t leave everything to your financial advisor. Actively participate in the decision making. However, we both know now you’ll only do that if you are financially literate.

  4. To plan for your retirement adequately: If you want to retire comfortably, increase your financial literacy. Why?

    Many companies have shifted their retirement plans from Defined Benefit (DB) pension plans to Defined Contribution (DC) pension plans.

    Do you have any idea what’s the difference between the DB and DC pensions plans? If you do, well. If you don’t, no matter how hard you hit your head, if you never came across these terms in your life, you’ll never have any idea of what they mean. Hence yo u’ll never know which pension plan is good or bad for you.

    Social Security used to be seen as a major source of retirement. But now you cannot depend on it to enable you enjoy life. It serves more like a safety net that will provide enough only for survival.

    Medical breakthroughs are enabling us to live longer than before. This means we need to accumulate more retirement income to cover living expenses over a longer time. Otherwise, we could become a burden for our families.

    Therefore, having a comfortable retirement is not the responsibility of your employer: the company, municipality, the government or state but...Yourself Sir! Ooh! and Madam! :).

How To Increase Your Financial Genius

Improved financial literacy will be a pathway for you to accumulate assets and achieve your financial security and freedom. This is because financially literate individuals are more likely to engage in sound financial planning.

Here is what you should do:

  1. Start by changing your self-defeating, negative attitude towards money and wealth.
  2. [Grab this FREE eBook-Changing your Money BluePrint.]

    It all comes down to this: if your subconscious “financial blueprint” is not “set’’ for success, nothing you learn, nothing you know, and nothing you do will make much of a difference. - T. Harv Eker

  3. Next, make it a habit of reading financial information in books, newspapers, magazines, and on the net. Study areas of personal finance that you are not well conversant with. Just the basics. But if you are more inclined to it take short courses, attend investment/financial literacy seminars and workshops that will help you get a better understanding of the world of finance. Your brain needs to start thinking in financial terms.
  4. You may want to find a good financial coach. This person can help you understand most things that are involved in managing personal finances. S/he will coach you on how to make informed and smart financial decisions and in the process you will start to grasp the money skills that will help you increase your financial literacy levels as you put those skills into regular use.

Remember, you can become financially literate at any time. You are not getting any younger, so now may be the best time to get started.

[Get a FREE copy of Developing your Financial Genius eBook]

Let me put it bluntly: anyone who says that money isn’t important doesn’t have any! Rich people understand the importance of money and the place it has in our society. On the other hand, poor people validate their financial ineptitude by using irrelevant comparisons. They’ll argue, “Well, money isn’t important as love.” Now, is that comparison dumb or what? What’s more important, your arm or your leg? Maybe they’re both important. - T. Harv Eker

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