One of the major savings and investment problems consumers face is having little financial education. Many individuals live with low levels of financial understanding and often make uninformed decisions on critical finance matters such as spending and using credit cards.
What is Financial Education?
The Organisation for Economic Co-operation and Development (OECD) defines financial education is a continuous process by which consumers improve their understanding of finance concepts and develop skills of making informed choices on financial products and how to improve their financial well-being. Financial education results to financial literacy and can be obtained through self-study, instruction, or objective advice.
Although financial education varies from person to person based on their education and income levels, research has shown that even wealthy, highly educated consumers can be ignorant about financial matters just as the less educated. According to a Financial Education report by the OECD, a survey carried in Canada showed that choosing the right investment for retirement savings plan was more stressful than visiting the dentist.
Financial education is crucial for everyday living and for success in savings, investment, and wealth building. Below are 7 reasons why you need to invest in educating yourself about finances:
1. It enables you to use money prudently
Financial literacy enables you to make wise and responsible money decisions. You gain ability to account for your incomes and expenditures, and are able to use financial services to your benefit. It is only with good financial education that you can understand where you are financially and plan on how to improve your financial circumstance.
2. Helps you build knowledge of financial products
The financial market continues to become more sophisticated partly due to technology advances, globalization and changing consumer needs. It is extremely difficult to participate gainfully in the today’s financial market without continuous proper financial education.
Gaining financial literacy will help you to understand how credit facilities, investment products, top performing shares (if interested in investing in the stock market), retirement schemes and other financial products and services work. This knowledge is extremely useful when deciding on how you can use them to become financially free and happy.
3. Financial education can helps you to end a debt cycle
Debt is probably the most concerning financial problem facing many persons especially in developed nations. Debt management is anchored on budgeting and spending practices, and financial education will give your every tenet of proper budgeting and managing every day expenses. If you are reeling under a seemingly endless debt cycle, take time to educate yourself on how to use credit wisely such that it does not hurt your accounts.
4. Gain saving and investment independence
There are two major reasons why you should yearn for financial decision-making independence. One, it helps you make decisions quickly and take advantage of opportunities effectively. Without financial education, you are not confident of your decisions and you may need to seek advice from one of two trusted people before you make your decision.
Financial independence in financial decision-making also helps to increase your return on investment. When you can make savings and investment decisions independently, you reduce the money spent on financial advisors. This means you save money that you can invest in your long-term wealth plan.
5. Conflicting advice from financial experts
Different financial advisers adhere to different philosophies. That’s why the opinions two advisors can be completely contradicting. For someone with limited financial literacy, coming across conflicting expert opinions is almost frustrating. Financially literate individuals can make their deliberations when they encounter controversial matters of finance.
6. Plan for the future better
With the many different options for saving and investment, choosing the most suitable avenues to achieve your goals is usually not an easy task. Lack of financial education makes it even harder to understand how different options affect the saving and investment outcomes. A simple example is retirement planning. With proper financial education you can more accurately determine the amount of savings you need to make for the life you desire at retirement.
Whether it’s planning for higher education, your children’s future school fees, or even a vacation, financial education will help you make sure that you have the funds needed when they are needed.
7. Financial education is not learned in school by the majority
Of course it’s not. That’s why you are here. Only a few people are lucky to learn the ideals of finance and economics when in their formative years. The majority get to maturity studying their desired fields only to complete school and get stuck with finances. Today’s young people are all over borrowing and spending not because they have no responsibilities or can access credit options. They simply lack financial education to help them understand the implications of their financial decisions.
Regardless of your age, profession, or education level, investing in your financial education will pay you handsome dividends for the rest of your life. It sets you up for a sustained financial reality. The sooner you get it, the sooner you can improve your quality of life, and the better it will serve you, your dependents, and possibly your entire generation.