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Financial Education – Best Investment

The popular perception is that knowledge of financial concepts is essential to only those engaged in business activities or dealing in finance as a profession.

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The truth can sometimes be uncomfortable, which is good for most financial decisions. How often do we hear about the ups and downs of the stock market, rising and falling interest rates, and change in economic policies introduced by the state and even venture to discuss the same with co-workers or friends?

What Stops Us from Acquiring Financial Education? Overwhelming Power of Mass Media

One of the most important reasons is the overwhelming power of mass media. It is no secret that mass media plays a significant role in forming our opinion about many things, and finance is no exception. We experience a constant barrage of information about financial products in the media, and we know a lot about these things.

The obstacle in the Guise of Help Is Any Advice Good Enough? What is the Solution?

All this is due to our ignorance of basic financial precepts. Do we need to say anything more about the need for financial education? Only financial education can help us make decisions as financially literate individuals.

What Do We Mean by Financial Education?

Financial Education is making informed financial decisions by understanding fundamental economic concepts. To begin with, when you open a bank account, you should know how it works; when you choose a financial instrument for investment, you should be able to figure your way around it and manage the element of risk efficiently.

As a credit cardholder, you should know how it works and avoids incurring real debt. In short, gaining an understanding of financial products, including but not limited to debt instruments, and knowing how to minimize your risks through a structured investment strategy is what financial education is about.

It may sound like it is necessary only for market investors, but it is not so. Financial education is even more critical for those managing family finances, which can help greatly with balancing a family budget, funding children’s education, acquiring a home, and choosing a suitable retirement income plan for future security.

Findings of OECD on Financial education

An international study conducted by OECD (Organization for Economic Co-Operation and Development) on financial education revealed that the level of financial education was rather low in most countries, including both developed and developed economies.

The study titled “Improving Financial Education” made several recommendations to governments on improving awareness o fundamental financial concepts in average investors.

The Extent of Financial Uneducation

It was found in the study that a large part of local populations in even developed economies needed to be adequately acquainted with basic financial concepts, which led to an increasing number of cases where high levels of debt resulted in bankruptcy and foreclosures. Private insolvencies have increased, where credit is easily available, but consumers need to gain more knowledge of debt management.

One of the most worrying findings by the OECD was that many consumers overestimate their level of financial awareness in comparison to what they knew, based on simple tests carried out for the same.

It is a simple psychological fact that if you feel confident enough about your knowledge and abilities in a certain area, you may not feel the need to get acquainted with the basics.

What Do You Need To Do?

To gain true financial independence, you need to assess your levels of knowledge in finance without making overestimations. Chalk out a rough plan for financial education, starting with the basics, and keep testing your knowledge with online tests designed to help you make an objective assessment.

Enrolling in an online or contact classroom learning program in financial education can also help you gain rightful confidence while choosing a savings plan or financial education planning your retirement.

Approach to Financial Matters

Here are a few pointers that can help you change your approach to financial matters;

No Financial Decisions are Simple Read the Fine Print

Yes, we mean it literally! How often have you signed financial contracts and documents with nothing more than a cursory look? The surprising answer is more often than not.

While you may disagree because you made it a point to read the document first, what about that fine print detailing the terms and conditions of a contract? Congratulations are in order if you did go through that, but most likely, you did not.

While commercial agents selling a product may be in a hurry to get the document signed, you need to make it a point, probably much to their displeasure, to diligently study the fine print.

One of the recommendations made by the OECD was specifically about “small print and abstruse documentation” in virtually every kind of financial contract “with potentially significant financial consequences” and the need to make the consumer acquainted with the subject matter therein.

While the recommendations of the OECD are non-binding on governments and institutions, it might be best if you take a cue and make an effort on your behalf to get to know everything there is to know before signing a document.

Learn the Difference Between Investing and Gambling

You might think the stock market is a rather unreliable place to put your savings, and you would be right for the most of it. However, what about those much-trusted insurance, savings, or retirement plans offering much higher financial security, even at higher growth? The fact is that an increasing number of equity-linked options are made available these days for insurance, savings, and retirement plans which have made it quite difficult to choose a product.

The simple fact is that most of these investment choices are neither good nor bad, but the outcome depends purely on how you manage it. Any investment you make without understanding is potentially a bad investment akin to gambling.

The knowledge sets investing apart from gambling because where a gambler hopes to make it big, an investor knows how to achieve a reasonable financial goal. Now, you can choose to be an investor or a speculator, depending on how you make financial decisions.

Usually, when a product offers much greater than expected returns without a clear explanation of how it would do so, you are most probably in for a ride. It’s better to stay away and not put your money into anything you need help understanding.

Begin Financial Education As Early As Possible

The best thing you could do to come in the clear on financial issues and improve returns on your investments is to start educating yourself on the basics of finance. Start by getting acquainted with basic terms and their definitions, and contrary to what you might expect, you will find a great deal of new information right there.

Discussing money matters with family members and friends could be a great way to keep yourself and others around you interested. But a word of caution here, avoid getting carried away by a false sense of being informed as you gain a new understanding of finance.

Enroll in one of the many financial learning courses available to avoid it. The most important thing is to keep learning to become a financially aware individual and, if possible, gift your child with financial education to feel secure in the knowledge that it can help them earn a lifetime of financial security.

Conclusion – Financial Education

Most people tend to underestimate the significance of financial education by thinking it is all about handling money. Though discovering the value of money and learning the art of managing it efficiently is rewarding enough in and of itself, the true reward of financial education is in the peace of mind it offers. A wealth no one can take away from you.