Oran Hall | Financial literacy an investment in yourself Published:Sunday | October 11, 2020 | 12:09 AM ADVISORY COLUMN:

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Oran Hall | Financial literacy an investment in yourself
Published:Sunday | October 11, 2020 | 12:09 AM
ADVISORY COLUMN: PERSONAL FINANCIAL ADVISER
To be financially literate is to have the financial knowledge
and skills to make effective financial decisions consistently.
The financially literate knows and practices how to make, spend,
save and accumulate money and is generally rewarded by achieving,
to a great extent, established goals.
Financial literacy gives us a solid foundation on which to base
financial decisions, that is, the decisions to take and not to
take. It helps us to make responsible financial decisions and
supports us in our efforts to achieve our many and varied life
goals, and to give us financial stability.
Yet, many who by training and experience are presumed to be
financially literate do not seem able to make effective financial
decisions. Perhaps they are not financially literate, after all,
having just the knowledge but not the skill or inclination to put
into practice the knowledge lodging in their heads.
But it could be more than that. Perhaps they would really want
to practice what they know but are inhibited by psychological
factors. Past personal and family experiences, the influence of
family, friends, the church, for example, can have a bearing on how
we relate to money. Attitudes of greed and fear, and even lack of
confidence in one’s own abilities can influence the quality of
financial decision-making.
What makes it so imperative to be able to make effective
financial decisions is the growing sophistication of the financial
world. There are more and more financial products and services as
time progresses, so it is important to have some basic
understanding of the financial world to be able to make the most
suitable financial decisions without being overly dependent on the
professionals in the financial sector.
And, lest we forget, there is no shortage of scams –
sophisticated ones too, which look like the real thing. It is not
enough to depend on the regulators to expose such schemes: we all
must take responsibility for the decisions we make and to be
realistic about the safety of financial products and the kinds of
returns that can be derived from them. The willingness to ask
questions, even mentally, should be an important part of the
decision-making process.
Our level of financial literacy is exposed by our ability to
make and manage our personal or family budget, our ability to make
basic financial calculations, simple interest for example, how we
make savings and investment decisions, how we incur and manage
debt, how and when we spend money and manage our bills, and how we
plan for the long-term. These are just some examples.
I find it hard to understand the professed inability to
professionals to make a family budget and struggle to understand
how educated young people incur credit card debt without taking
time to understand how credit cards work, using them with reckless
abandon, thus inflicting untold suffering upon themselves when the
time of reckoning inevitably arrives.
Responsible management of debt is an imperative for our time,
for the emergence of credit rating agencies has changed how credit
is done. People who fail to honour their debt obligations to
certain lenders and service providers cannot hide under the radar
any more, so they are not able to borrow as their credit history
effectively becomes an open book, and they do not seem able to come
up with the strategies to address their problems.
Investing in stocks is becoming quite fashionable, and nothing
is wrong with that. In fact, more people need to look into that
direction
My concern is that too many market participants fail to prepare
themselves, and enter with the wrong attitude: to make a profit as
quickly as possible. Others take positions out of line with their
risk profile or, not taking time to understand the role of the
stockbroker, fume when they do not get the expected tip to buy or
the call to sell.
It has to be understood also that the value of money changes
over time – for the worse. So we get less for the dollar as time
passes and well-laid plans made in the past but not adjusted to
reflect changing realities eventually fail to materialise.
Many people manage their own money, so they must be able to have
the confidence to do so. Ignorance is not bliss: we cannot afford
to be unaware because the consequences can be dire.
Financial literacy should start at home. Parents should teach
their children by instruction and, very importantly, by example, so
they must be financially literate themselves. The education system
also has a role, so does the church. It is not too much to ask
employers to play a role, for how productive can employees be when
foremost on their minds is their financial woes?
Personal responsibility, though mentioned last, is not to be
considered as the least. What is required most is time.
There is no shortage of resources and media. The newspapers,
radio, television, magazines, books, the internet, which provides
so many different avenues for learning for people with various
learning styles, and financial courses are readily available
sources of financial literacy, the only caveat being that not all
of the information provided is reliable.
Oran A. Hall, principal author of The Handbook
of Personal Financial Planning, offers personal financial
planning advice and counsel.
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