The Financial Literacy Problem


“A Canadian survey found that respondents considered choosing the right investments to be more stressful than going to the dentist”

Photo by micheile .com on Unsplash

A lack of the knowledge and use of financial skills, which include budgeting and spending, investments is a major problem for many individuals.

This is a huge contributor to the high level of poverty globally.

We are naturally financially reckless because financial education and literacy haven't gotten mainstream in our educational sector.

According to the Organisation for Economic co-operation and Development (OECD), Out of 67 students, only 28% understood the concepts of compound interest after they were asked to solve a problem using it.

A survey of Korean high-school students showed that they answered fewer than 60 percent of the questions correctly on tests designed to measure their ability to choose and manage a credit card, their knowledge about saving and investing for retirement, and their awareness of risk and the importance of insuring against it.

There are so many other findings from surveys worldwide that highlight the low level of financial literacy in individuals.

Few financial educative programs are effective in some parts of the world. But the challenge they encounter is the lack of interest from people.

If a high level of financial literacy is achieved in our world today, The poverty levels will drop drastically, and life would be better in general.

You can learn how money works and build wealth for yourself.

Building wealth has more to do with your savings rate than your income

We all play this game. As a student or a salary earner, most people use a chunk of their income once it drops, within the first few days or weeks. And when there's the sudden realization that there's little left, we plan with what's left and manage it efficiently till the next pay.

The point is if this efficiency can be done always, from when there's an income, with a good savings habit.

"Wealth is accumulated leftovers after you spend what you take in. And since you can build wealth without a high income, but have no chance of building wealth without a high savings rate, it's clear which one matters more".

The value of wealth is relative to what you need.

Finding a way to live comfortably with less money creates a gap between what you have and what you want.

This is the difference between two people with the same income. One saves at a good rate and still lives happily and the other's lifestyle compounds as fast as his assets. Even if the former is a worse investor, he's getting more benefits from his investment despite low returns.

What you need is just what sits below your ego

One of the most powerful ways to increase your savings isn't to raise your income, it's to raise your humility.

Don't care about what people think about you.
We like to keep up with the materialistic lifestyle of others and stretch to fit in.

Sometimes this is done as means to show that you have money, (or had).Your ability to save is more in your control than you think.

You desire less when you care less about what people think of you.

When you desire less, you spend less

When you spend less, you can save more.

You don't need a specific reason to save

Our world is unpredictable, so saving without a reason will help you when life hits you badly in unexpected ways.

You can achieve a lot from this, it gives you flexibility. our world has evolved to one where people with flexibility thrive.
You can decide to retire early, find a job that's paying less but has more purpose, etc.

You can jump on new investment opportunities, you can learn and hop on a new in-demand skill, and so on

Having more control over your time and your options is valuable.

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