Financial literacy is now becoming a subject of great interest as a result of global economic situation. In this article we will distinguish between general and particular understanding of Låna 20000 financial literacy to help clarify the confusion that surrounds the subject of money. We will also discuss particular knowledge and skills to guide us in our journey to financial freedom.
In the midst of global financial situation, two breeds of financial educators are vying for people’s attention. They offer different advice as to the role of saving and the way of investing. Some would say saving is your way to achieve financial stability but others would contradict this idea, seeing savers as losers due to currency instability. The conventional advisers adhere to diversifying the investment strategy where the minority advisers would suggest focusing for a long-term.
With conflicting opinions that surround the financial world, your best recourse is to prepare yourself by investing your time to learn about financial literacy. By gleaning ideas from three definitions of financial literacy, we will see the importance of distinguishing between two aspects in understanding the subject. Let us start with the first two definitions:
These definitions resemble each other with minor differences. Both of them distinguish between two aspects of financial literacy – the general and the particular. General understanding of financial literacy is focused on the money itself. This is important. Most of us have handled money all of our lives but we almost know nothing about its history and nature. We do not even know what a fiat money is. Most people do not understand the difference among commodity money, promissory money, and fiat money. When a financial educator would say that money is just an idea, such a statement does not make sense to most of us.
One of the benefits of economic recession is that people are now beginning to study what money really is. And you will be surprised with the outcome of your study.
The particular understanding of financial literacy refers to “set of skills and knowledge.” This set of financial knowledge and skills gives an individual the ability to make informed decisions. But again, decisions can only be called “informed” if the decision-maker knows the history and nature of money, how it evolves through time, and how the existing monetary system works today. Without this knowledge and skills, you are like a person walking in the dark, not knowing where to go. With such a condition, you are very vulnerable to the so-called “financial experts.”
The best decision you can make is for you to study yourself the history and nature of money. Armed with that knowledge, you are in a position to distinguish if advice is sound or not.
Let us proceed to the third definition. Your Life, Your Money is the source of this definition:
“Financial literacy is the ability to use knowledge and skills to manage financial resources effectively for a lifetime of financial well-being.”3
I have a problem with this definition for it automatically jumps into the use of “knowledge and skills” in managing finances without understanding first what finance is. Or perhaps the definition assumes the knowledge of money and that is why it immediately goes into knowledge and skills. Personally, that assumption does not equip a person with a solid beginning in learning financial literacy.
The commendable part in this definition is the mentioning of managing “financial resources effectively” and the goal of having a “lifetime of financial well-being.” These two goals indicated in the definition are achievable, again, if knowing the history and nature of money are included in the understanding of knowledge and skills. If not, I doubt if these goals would be achieved for how can you manage something that you do not know? And how can you journey towards a future of financial well-being for something that you are not certain about?
Particular Knowledge and Skills
Included in the particular understanding of financial literacy is the knowledge of the relationship between two types of papers – the income statement and the balance sheet. Study the relationship and you will never regret it. Reading Rich Dad, Poor Dad and Cashflow Quadrant would give you the idea what I mean by that relationship.
Another important knowledge is the ability to see the distinction between an asset and a liability. Fitz reports in The State of Financial Literacy in the Philippines that most OFWs and their families are confused about assets and liabilities. Their hard-earned money abroad is spent on what they perceived as assets but in reality are liabilities. The key in the journey to financial freedom is to know what real assets are and source out finances buying them.
Another skill is the ability to formulate a financial plan and having the discipline to stick with your plan. Fitz’ report focused on OFWs and the middle class in the Philippines. Among the data about middle class, what interests me is that 84% of them does not have a “formal” financial plan. The absence of it suggests a lack of financial intelligence. Among the many causes of poverty in the Philippines, Fitz echoes the precise analysis of Robert Kiyosaki that absence of financial literacy is one of them.
How I wish the attention financial literacy gains from both the American government and the public is also happening here in the country. The US government is now sponsoring various programs targeting community development with special emphasis on the financial well-being of low and middle-income households. Programs like credit management, counseling homeowners, and offering guidance about loans and asset building are organized.
Another good sign that receives increasing support today is the admission about the insufficiency of conventional education to prepare our youth for the real world. Your Life, Your Money aims to change this error by telling stories of people who got into financial trouble and are able to come out hoping that these stories would evoke a response for people to change their course of action not to enter similar predicament.