Money Matters – Financial Literacy: A Vaccine for Life

Tuesday, July 12, 2022 11:45 a.m.

Could a double dose of financial literacy combined with experience help households make more rational financial decisions?

What can be done to enable households to make more rational financial decisions? In the wise words of Warren Buffet, one of the greatest investors of all time, invest in yourself by accessing the latest financial education for everyone in your household.

Our wealth should not be different from our health. Choosing financial literacy for yourself is as valuable as having a lifelong vaccine. Just as we choose to sustain our health with multiple doses of the COVID-19 vaccine, you need two doses for your financial health: financial literacy combined with experience in financial markets and investing.

Imagine riding on a flywheel. The first two stages are the most difficult. The wheel spins slowly, but eventually picks up speed. Financial advisors will help you spin the wheel faster by helping you understand exactly what you’re investing in. Conversely, financial literacy enables you to have meaningful conversations with your financial advisor. Once the flywheel begins to spin, it takes less effort to turn it and it begins to generate income for you and your household.

Ultimately, if you don’t understand what you’re investing in, you shouldn’t be investing. Make informed decisions to move forward with financial planning and make the most of the financial markets to achieve your own financial goals. And never stop learning because if you stop learning, you are obsolete. Use what you’ve learned as a risk management tool for your household so you can safely proceed with financial planning and deploying your savings in financial markets.

Keep your emotions under control

There is a clear connection between psychology, our mindset, and our long-term financial and investment decisions. You can’t expect great results when you let your emotions guide your investments.

While social media and marketing campaigns are constantly pushing you to invest one way or another, don’t be swayed. Instead, replace the word emotion with discipline. Follow one of the golden rules of wealth management: diversify and rebalance your investments across different asset classes.

Don’t let your old self run out of savings

Thanks to science and modern medicine, we may end up living longer than we think. However, if we outlive our savings, we will have problems in our old age. Although the majority of workers have a public pension plan, that too may not be enough because we have longer life expectancies and tend to outlive our savings. These people should aim to have a private pension as an additional source of income to support themselves in old age.

Take a bold step beyond the threshold

Globally, house prices rose 10.3% on average in 2021, their fastest pace since 2006, according to the Knight Frank World House Price Index. For many millennials, that means they can’t afford a home. Real estate is a real good, and it adjusts to inflation, making it out of reach for some millennials. Even if they can afford to buy, many choose to be “lifestyle renters” instead of buying homes.

Home ownership was a great way for our grandparents and parents to learn how to invest and generate returns or save. Today, millennials are moving away from the idea that home ownership is the first step on the investment ladder. Instead, they want to diversify their investments, and their preferred assets may be a basket of new asset classes coming to market. That’s fine, as long as they have a clear understanding of what they’re investing in.

Take a good look at your future self

Imagine yourself far in the future and ask yourself if your risk appetite matched your understanding of the value of your investment? For example, a designer bag you bought for $10,000 may now be a relic in the back of your closet, but if you had invested that money in an asset class with a real interest rate of just 3% , it would have become $40,000 when you retire. .

To consider an asset class for investing, it must be an asset class that can earn you something, and you can ultimately benefit from selling it later. So before you get excited about a new asset class that looks rosy on social media, ask yourself what your investment will look like in 45 years?

You take a big risk when you don’t know what you’re doing or don’t understand the asset class you’re investing in. It is the responsibility of your financial adviser to explain the risk, but more importantly, to educate you on the risk of the investment in which you are about to invest your hard-earned savings.

Don’t fall into the trap of accumulating excessive risk because of poor financial education. Take steps to arm yourself with knowledge.

Article originally published in The young vision Magazine.

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