The more you learn, the more you earn.
– Warren Buffet
Money has been something all too familiar to us, but somehow too prickly of a subject to discuss openly with family, friends, and colleagues. For a long time, I thought money was something I didn’t need to study about — just something I’d eventually learn along the way as I work and earn.
Sadly, the school did not teach us about personal finance and neither did our parents for most of us. The mainstream media (at least in my part of the world) produced a few shows around it, but they were often broadcasted at ungodly hours. Some TV programs talked about economics, but not so much about personal money management. Or if they did, it was not as thorough as we’d hoped it would be.
And so financial literacy was a foreign subject to most of us — a whole different dimension we would never have had the opportunity of traversing if the internet was not born. (Until I came across Dani Johnson’s YouTube channel, I thought money was an evil enemy I didn’t have to understand. Thank God for Google and social media, I found a lot of helpful information I wouldn’t have heard on primetime TV or at home.)
After consuming one YouTube video after another, I found myself hungry for more honest discussions about money. From Youtube to Robert Kiyosaki’s “Rich Dad, Poor Dad” to blogs, my unhealthy understanding and non-existent relationship with money slowly dismantled.
So, what is financial literacy and what is it NOT? Here are the things I’ve found out.
What is Financial Literacy?
“The poor and the middle class work for money. The rich have money work for them.”
-Robert Kiyosaki, “Rich Dad, Poor Dad”
Financial literacy is knowing how to manage money effectively
Probably one of the most striking differences between the rich and the poor is their understanding of money — that is, the knowledge they have on how to manage finances and generate more wealth.
According to Investopedia, financial literacy is “the ability to understand and effectively use various financial skills.” These skills include financial management, budgeting, saving, and investing.
When we start to understand how to manage our money effectively, it becomes easier to identify the problematic areas in our finances and find ways to remedy our problems.
Financial literacy is having a healthy relationship with money
We often hear how “money is evil”. My uncle used to say that money can lead us to hell. Though money is often the motivation behind many corruption and criminalities, it is often the greed for or the lack of it that led many to commit something they shouldn’t. This said, money is just a tool to access resources we need — food, medicine, clothes, assets, power, and influence. Indeed, it’s a very powerful tool.
When we learn how money works — how it is generated and how it is lost — we can start making wise and profitable decisions and actions. Financial literacy helps us nurture a healthy (not harmful nor greedy) relationship with money.
Financial literacy is a life-long journey
Reading a whole book about finance can be mentally empowering. However, gaining a deep financial understanding with lasting results takes time (years…decades…). It’s more than just learning the principles behind it on an intellectual level.
You have to act on it, do some trials, and even commit errors to fully understand the foundations of financial management and how it affects your life on a personal level. Financial literacy is not just head knowledge, it’s an experience and a lifetime adventure.
Reading Rich Dad, Poor Dad has broken a lot of negative mindsets I had about money. But it was only the beginning — the tip of a very massive iceberg I needed to explore. It was only until I began budgeting, saving, investing, and losing/gaining money that I fully embraced the beauty that is financial literacy. And it wasn’t as scary as I thought it would be.
What it is NOT
“We don’t have to be smarter than the rest; we have to be more disciplined than the rest.”
– Warren Buffet
We may have several misconceptions about financial literacy that have discouraged us from learning it. Here are some that you may be guilty of and might need to reconsider.
Financial literacy is not just about saving money
Yes, financial literacy talks about saving—keeping—money wisely. But it’s also about how to grow our resources to achieve financial freedom. The goal of financial literacy is to help us become financially independent. And saving money alone will not help us achieve this.
More than saving, financial literacy helps us learn how to manage our finances and generate lasting wealth. It teaches us how to invest our resources in different assets that will produce passive income streams.
Financial literacy enables us to grow our financial ability so that our family and future grandchildren can still live a peaceful life free from financial worries. It empowers us to work hard AND smart.
Financial literacy is not as hard as college math
For liberal arts students such as myself, just the thought of learning advanced math is extremely repelling and exhausting. I hated math (at least the subjects I had in high school and college). Numbers aren’t my strength, and so is money… or so I thought.
The more I learned about financial literacy, the more I became fascinated with numbers. Yes, financial literacy will require us to read and understand numbers. But instead of the complicated mathematics taught by boring professors, financial literacy is more applied math — putting our numerical intelligence to work and applying it to our daily life.
Financial literacy wouldn’t require sophisticated geometry and calculus. Simply knowing addition, subtraction, multiplication, and division is a good start. There are also calculators and spreadsheets to help you.
Financial literacy is not something you’ll eventually learn once you start earning
A lot of working professionals remain clueless about managing their finances and become more financially miserable as they progress into adulthood. That is why there are a lot of adults drowning in debt, married couples divorcing over money, and old people retiring without any savings left in their retirement. That is because financial literacy is a discipline of the mind and emotions.
According to a report by Annuity.org, 37% of adults said they were just getting by financially while 60% of workers didn’t believe their retirement savings were enough. This is because they were unable to learn how to manage their money effectively despite earning money. The sad part is, most of the population keeps incurring huge consumer debt that is damaging their financial and mental health.
Bottom line
There are a lot of things to learn about finance and wealth management. And it can be intimidating at first. However, the more we get our feet wet, the more we become confident about managing our finances. We don’t need to be extremely smart to start this journey. We just have to be willing to grow, learn and unlearn, and discipline ourselves to form positive financial habits and make wise decisions.
To understand more about financial literacy, read our article “Why We Need Financial Literacy.”
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