Financial Literacy: An Introduction (Part 1)

Financial literacy has many definitions. One of our favourite ones is knowing how money works, and how you can put money to work for you. Others define it as how well one can understand budgeting, and apply financial prudence to life decisions.

In general, financial literacy refers to how well one can manage their financial resources effectively throughout their life, and how well they are able to plan for their financial goals.

Why is important for us to be financially literate? 

Research studies across countries on financial literacy have shown that most individuals (including entrepreneurs) don’t understand the concept of compound interest and some consumers don’t actively seek out financial information before making financial decisions. Most financial consumers lack the ability to choose and manage a credit card efficiently, and lack of financial literacy education is responsible for lack of money management skills and financial planning for business and retirement.

Futurpreneur

Finances are an integral part of our life, and many of the decisions we make on a daily, monthly and yearly basis either affect our finances directly, or revolve around the subject of finances. The way we understand and approach finances can have a huge impact on the decisions we make in many areas small and large, from food and lifestyle choices, to career and family matters.

The consequences of good or bad decisions compound by the day. When the dimension of time is factored in, the good gets better and the bad gets worse. Good investment plans can gather handsome compounding interest, while uncurbed bad spending habits might do the exact opposite with debt and bills.

Being financially literate also helps us in preparing for the future like family planning and retirement, though they might not feel as important at present. There might also be times when we are caught unaware by circumstance, for example not being covered by insurance for hefty hospital bills. Decisions like these have to be made way beforehand, so it pays (literally) to be well prepared.

Having discussed how important financial literacy is, let’s play a quick quiz to get a gauge of where you’re at.

   


Are you satisfied with your score? Did you predict your score correctly?

Pause and have a moment to reflect. Did you underestimate or overestimate yourself? Why do you think that was so?

If you feel your financial literacy needs improvement, here’s an infographic we made with some tips to get you started!

 

In our next article, we will show your results compare to the rest who have taken this quiz.
We’ll also go deeper into the main areas you should be mindful of to improve your financial literacy.

This content was brought to you by our partners, Hive Up. Do remember to sign up for their mailing list if you haven’t already, so you won’t miss out on new content!


 

Financial Wisdom in Delayed Gratification – Part 3

In Parts 1 and 2 of this mini-series, we introduced the concept of instant and delayed gratification, and how it has possible implications on our decision-making and finances. Join us today for the 3rd and final part of this series, where we discuss practical steps on how to improve our financial self-awareness and avoid the pitfalls of instant gratification. (If you have not read Parts 1 and 2, it would be great if you did to benefit best from this series.)

Financial prudence seems simple in theory. Spend as little as you can, save as much as you can, and invest as wise as you can. But like we said, that’s in theory. We need to admit that as humans, we have emotions and vulnerabilities, and sometimes our behaviors can differ from our original intentions.

As we mentioned in Parts 1 and 2 earlier, the solution to better financial decision-making lies in tipping the scales in being less emotional and being more numerate and rational. When we are better aware of the pitfalls of instant gratification as discussed, it will aid us greatly in the plans we make to improve. To improve our chances in mastering delayed gratification, here are 4 steps to follow.

Step 1: Get your priorities right

A big reason why we struggle with delayed gratification is that, the future does not seem as real and tangible as the present. We must put effort into imagining the greater rewards we want to wait for, if not they will seem vague. We need to put our brains to work — visualise and extrapolate the circumstances vividly in your mind’s eye.

Consider, to the point of iron-clad conviction, our financial goals in the order that we deem most important. Ensure that our basic and foundational needs are settled before tackling the fancier “good-to-have” ones. Determine for ourselves, if retirement and insurance should take precedence over the fancy sports car, or if our children’s education is more important than our current spending lifestyle.

Step 2: Materialise your plans

Writing down our goals and plans are a great way to make our thoughts and intents tangible, and will help much with decision-making when the rubber meets the road. Detailed lists and comparison tables can be fantastic. Spreadsheets are extremely helpful to do calculations especially in the context of time. Contextualise your goals, work in the details, and be sure to track them.

Step 3: Never Rush

Patience is key. Whenever we are faced with a decision, don’t be pressured to act on instinct. Wait. Take time to let the heat of impulse diffuse. Always take a step back and consider different perspectives and alternatives. Refer back to the plans we have made earlier, instead of being reactionary.

If we find ourselves struggling with this, it may mean our convictions and plans are not strong enough to affect our behaviour. Do repeat steps 1 and 2. Be humble and bounce our plans off with people whom we trust and know have our best interests at heart. They could offer a different perspective and prevent tunnel vision.

Step 4: Commit

Put your money where your mouth is. By putting your savings and investment plans into action, it forces you out of procrastination to be accountable. Take that step to start the realisation of your financial goals by speaking to your financial advisor or wealth manager. The earlier you do this, the sooner you reap the benefits of time. (Remember the effects of compounding interest we explored in the quiz in part 2?)

In conclusion, let’s go through this checklist to see if you have the main areas covered.

We truly hope this article has been helpful in continuing your journey of mastering your finances. Do you have thoughts and ideas what you would like to share? We would more than love to hear them!

This content was brought to you by our partners, Hive Up. Do remember to sign up for their mailing list if you haven’t already, so you won’t miss out on new content!