Financial Literacy — Skills We All Need to Master

Photo by micheile henderson on Unsplash

For some, money is considered evil, while others believe it makes the world go round. Regardless of your perspective, financial literacy encompasses more than just money itself. It goes into the realms of money management, relationships, and the psychology behind our financial decisions. Robert Kiyosaki’s famous book, “Rich Dad, Poor Dad: What the Rich Teach Their Kids About Money — That the Poor and Middle Class Do Not.” is a 101 read for those new to the subject. While I disagree with some of the author’s conclusions, his overarching argument holds water-our behaviours and attitudes towards money are what truly matter, rather than its source or accumulation.

Growing up in a household where money was neither scarce nor abundant, I learned to view money as having transactional value. In other words, it was not about its intrinsic worth but rather the transactions and exchanges it facilitated. However, as I matured, I realised that perceiving money solely as a medium of transaction limited my understanding and hindered my relationship with personal finance.

This is where the relevance of financial literacy becomes evident. To overcome this limited perspective, we must acquire financial literacy — the ability to comprehend and effectively utilise money in various aspects of our lives, such as personal budgeting, saving, earning, spending, and investing.

So, how does one attain a comprehensive understanding of money and use it effectively? Financial literacy starts with addressing fundamental questions:

1. What is Money? Understanding the nature and function of money helps us grasp its significance in our lives.
2. Who Controls It? Exploring the institutions and systems that govern money sheds light on its dynamics and influences.
3. How is it Acquired? Examining how money is earned and accumulated provides insights into financial independence and wealth creation.
4. What is the Relationship Between Spending and Earning Money? Uncovering the delicate balance between these two aspects reveals the importance of responsible financial decision-making.

Once we have satisfactory answers, we can go into money management and our relationship with money.

Money management, while primarily addressing the demand side of finances, also encompasses budgeting, expense tracking, investment strategies, and more. On the other side of the coin, understanding our psychological and emotional connection with money is integral to financial literacy.

Financial literacy is a skill that comprises two essential equations: the understanding equation and the management equation. Both facets are interdependent and necessary for a well-rounded grasp of personal finance. Whether we perceive money as possessing intrinsic value (which I contest) or view it solely as a transactional medium, there’s no denying that money makes the world go round.

To navigate this world effectively, we must equip ourselves with financial literacy.

Now, let’s explore five benefits gained from attaining financial literacy:

1. Improved Financial Decision-Making:
2. Increased Financial Stability
3. Enhanced Goal Setting and Achievement
4. Reduced Stress and Anxiety about money
5. Long-Term Wealth Creation:

Financial literacy is a critical skill that empowers individuals to navigate the world driven by money. Regardless of our perception of money’s value, understanding its dynamics and effectively managing it is essential for personal and financial well-being.