Financial literacy – the key to attaining financial freedom

Financial literacy – the key to attaining financial freedom

“An investment in knowledge pays the best interest.” – Benjamin Franklin

When I was small, I had a small piggy bank in which I used to regularly set aside a little amount that I received as pocket money from my family. The sense of savings was simple back then for the younger me, giving me a security blanket for all the things I wanted to buy. As I got older, I got to know that its not as simple as I thought it would be – the concepts of savings, investments, loans – are quite complex and to deal with it I have to be more equipped.

However after being in the financial services industry for the last decade, I can confidently say that there is a guiding light that can equip us all with a better earning potential and secure our financial future – financial literacy!

Coming from a 100% literate state like Kerala, where most people rely on the traditional ways of investments, its not shocking that statistics reveal that less than 5% of the population here is financially literate. This is what got me passionate about the concept of financial literacy and to be a torchbearer for the same!

Garnering financial skill sets early on is crucial for making informed financial decisions and ensuring long-term financial success. By being financially literate we can easily understand the various financial products we can invest in by calculating the risk return trade off we are taking for each. It will also enrich us to make better judgments, as we will have better understanding of the economic changes happening around us. And it will help us to know whom to approach for financial advice.

The benefits of being financially literate range from being good with managing money to improving our chances of realizing our financial goals.

So where does it all start?

“Each penny we saved is each penny we earned.”

It starts with each one of us and it starts young! We need to start taking action. We think about our finances when we start earning, till then we pay no attention to it. It’s important that we start teaching our children right from school about the importance of managing finances. It should find its way to our school curriculums.
Our expenses have skyrocketed with the money that we earn being eaten away in numerous ways from rent, EMI, bills, education, shopping, travel and health.
Seeing the massive amount of the salaries being spent on these expenses most people feel that there

“A journey of a thousand miles begins with a single step”. Confucius
A concept that needs to be drilled among our youth is that no matter how small the amount, investments need to be done. After all, little drops of water makes the mighty ocean. All that matters is we start our investments at the earliest.
We need to make every effort to educate ourselves about the various money habits. As individuals we need to start understanding the various investment opportunities available, the market trends and its impact on the economies across the globe. Resources are readily available from newspapers to online journals. A little time reading up about the many trends in the market can go a long way to improving our financial knowledge.
Next we should have a proper financial plan to run our lives. Maintaining a disciplined balanced sheet between income and expenses that provides a clear picture of our financial situation will do the trick!

As already professed by countless gurus in the field of finance, investment should always be our first expense. In the book Rich Dad Poor Dad, Robert Kiyosaki mentions the four quadrants – employment, self-employment, business and investing – as broad ways of making money. We need to work all the way to the top of the quadrant towards investing according to him.

While making investments, we must link each of financial products (like term insurance, health insurance, SIP, etc.) with each of our financial goals. Basically each financial product should work as a solution provider for us. We have to gain a clear clarity of each financial product, along with their performance in recent years before we make the investment. Also we have to keep the investments in our portfolio as diversified as possible to avoid risks. It’s also important that we keep ourselves updated about the latest financial products in the market like tax saving schemes.

“Compounding is the eighth wonder of the world.” Albert Einstein

Compounding is the building block of financial literacy. The power of compounding is well versed for most of us as we all have loans and we pay EMI. But when it comes to the investment angle most of us forget the concept. The concept of compounding is so powerful that it can turn our small investments into a whooping sum after a period of time. Even the small amounts we start with while investing become part of our investments and start generating returns.

When we are ill, we consult a physician. Similarly, when we are faced with ways of achieving various financial goals we need to consult a financial doctor or investment mentor. They can help us to get the right solutions to better understand how to budget and save as well as manage our credit and debt. Each one of us has different goals, so its better we seek financial advice first before making investments in various products. This brings the need of having more qualified Chartered Wealth Managers, Certified Financial Planners as the need of the hour.

Financial literacy opens up doors to financial freedom. So lets take a step forward by being financially literate and make every effort for the same.

Financial freedom begins today, begins now.. and of course begins with you!!

Idea & Concept: Benil Dani Alexander, Managing Director – Hedge School of Applied Economics
Content Development: Anju Kurian