FINANCIAL EDUCATION PART 1
Financial Education is the ability to understand how money works. It is the ability to use knowledge and skills to manage your financial resources effectively to achieve your financial goals, whatever they may be. It refers to the set of skills and knowledge that allows you to make informed and effective financial decisions. Consequently, financial illiteracy is the opposite, of having no clue how money works or how to handle it to achieve your financial goals. Sadly, this is the state most people are.
Financial illiteracy is the opposite of financial literacy and is the root of financial struggles. Without financial education, you cannot make informed financial decisions. In the past couple of decades, government and employers have shifted responsibility of financial decisions and management to individuals, ranging from retirement plans, health insurance etc. More than ever before, the individual is on his own. Very few employers take on the burden of paying pensions to retirees. It is now contributory, and if you do not keep a keen eye on your pension fund managers, you may find yourself stranded in old age. It the US, social security is broke, and folks that still put hopes on it are in for a rude shock.
There are tons of financial products in the market and consumers need to make informed choices. This ranges from mortgages, credit cards, car loans, other types of loans, insurance, investments etc. If you don’t know what you are doing, you can dig yourself into a hole.Consumers need to be financially literate to be able to make informed choices. When consumers lack this knowledge, they are prone to being taken advantage of by unscrupulous brokers and dealers trying to meet their targets. They fact that a friend or relative is asking you to buy a product does not mean that the product is good for you.
For example, when buying insurance investment products, you are hardly informed upfront that commissions will be taken form your premium up to and in some instances above 40%. For such products, you cannot get surrender value until after 2 to 4 years. If you attempt to liquidate the policy before then, you get much less than what you paid in premiums. The rest had gone with commissions. You don’t get to know this things except by experience, or reading others experience and books on personal finance.
You cannot afford to based your financial education solely on what your banker or broker tells you. They are also looking out for themselves in terms of commissions or meeting their target. What you get as knowledge is often a sales pitch.
If you decide to continue to wallow in financial illiteracy, you get to pay a very heavy price.