Financial literacy, quite simply, is a prerequisite for financial freedom. Financial Times
Fixing economic, income and wealth inequality across the nation and globe remains a Herculean task. But, by emphasizing basic financial literacy education — to boost budgeting skills, debt knowhow and investment knowledge— need not be. And basic financial understanding can make a vast difference — not just to economically disadvantage communities, but to anyone in virtually any circumstance.
The correlation between high levels of economic and financial inequality and low levels of financial literacy and understanding is one of the starkest. The problems are worsened by low levels of knowledge about how debt interest is calculated, how it compounds and how to mitigate risk or budget effectively.
From the 2014 S&P Global FinLit Survey, only a third of the world’s population were deemed financially literate, according to analysis by the World Bank.
Financial literacy education, done right, can be a source of emancipation for the economically disadvantaged seeking a way out of deprivation.
Targeted at the young, in particular, it can lay down vital foundations for future prosperity and teaching them about risk and investment opportunity. One of the big reasons to target young people is that later in life they become much harder to reach.
Too many children think money grows on trees. They don’t realise that they have to budget all this money as they get older, they’ve got to pay these bills. FinLit should be one of the things that’s taught to prepare the young for the real world.
“Narrowing the financial literacy gap is crucial for narrowing the wealth gap. But financial literacy clearly needs a boost across the social strata too”, says Aimée Allam, executive director of FT FLIC.
The best investment you can make is in yourself and in your financial education. It’s the obvious starting point to building wealth and achieving financial freedom. And, here are seven reasons:
- Provides dividends for life that nobody can ever take from you.
- Increases your earning potential.
- Increases your return on investment.
- Improves the quality of your life and finances.
- Secures your retirement.
- Defends your portfolio from unnecessary losses.
- Provides peace of mind around money.
To ensure you become financially free, take the income you think you’ll need in retirement and multiply it by 20. That’s what you need to put away in order to live off the interest without touching your principle.
Determine how much risk tolerance you have as you look to compound the money you’ve set aside for retirement. the billionaire’s secret, whereby they get Risk/Growth-like returns with assets that would fall in the Security asset class. The wealthy risk very little and expect substantial returns.
References:
- https://www.ft.com/content/80480742-9853-4144-9c91-238021414bc8
- https://financialmentor.com/financial-advice/financial-education-best-investment/13173