In simple terms, financial literacy is a sufficient level of knowledge and skills that allows you to make informed and effective decisions in various areas of personal finance management, such as savings, investments, real estate, insurance, tax and retirement planning . Financial literacy also includes a deep knowledge of such financial concepts as personal financial planning, compound interest, how credit instruments work, effective savings methods, consumer rights, as well as an understanding of the relationship between various economic processes and events.
Lack of financial literacy can lead to unwise financial decisions that can adversely affect a person’s financial condition and even drive them into debt. Therefore, in developed countries, governments create special educational resources for people who want to become financially literate.
Modern research shows that financially literate people are more efficient and successful in life, regardless of in which country, in what positions and in what area they work. It is safe to say that knowledge of the basics of financial literacy improves the quality of life and positively affects the well-being of people. That is why teaching financial literacy concerns everyone personally ! I encourage all readers to take some time to improve their financial literacy.
Unfortunately, historically, the issue of financial literacy of the population in Russia has never received due attention. In the Russian Empire, there was no other institution for teaching financial literacy except for the family. Therefore, wealth along with knowledge has been passed down for centuries from generation to generation. During the Soviet Union, there was also no need to teach ordinary people financial literacy – salaries and pensions were set and guaranteed by the state, there were no risks of losing income, and the number of financial instruments legally available to the people could be counted on one hand. Along with the arrival of a market economy in Russia, it became necessary to understand economic processes by every market participant, every person.
The need to educate the population in financial literacy has become evident at the state level only recently. Before that, many people managed to step on the “rake” of financial illiteracy and lose their savings in various financial pyramids, with the default of Russia in 1998, due to the global financial crises in 2000 and 2008.
Nevertheless, the financial literacy of most Russians and residents of the post-Soviet countries still remains at an extremely low level, because there are catastrophically few qualified specialists who can teach people the basics of financial literacy. Fortunately, now on the Internet you can find enough information in the form of books, articles and publications and independently improve your financial literacy. Remember, your well-being is directly related to your level of financial literacy .
How to improve financial literacy – where to start?
It is never too late to start training in this direction. There are 5 simple ways everyone can improve their financial literacy. Here they are:
1. Read special books on the basics and principles of financial literacy. For beginners, I recommend reading the following books
• George S. Clayson – The Richest Man in Babylon.
• Vladimir Savenok – “How to make a personal financial plan. The path to financial independence “
• Vladimir Savenok -” How to implement a personal financial plan, or How much money is needed for happiness “
2. Read feature articles –
Many financial advisors, including yours truly, maintain their blogs, in which they share “secret knowledge” about personal finance with a wide range of readers. Here you can familiarize yourself with already published articles in my blog, as well as subscribe to receive new articles by e-mail. This way of increasing financial literacy is good because it does not take a lot of your time. Finding 5-10 minutes during the day to study one article will not be difficult even for the busiest people.
3. Play financial literacy games.
There are various business simulation games, as well as investment activity simulators, which allow you to master the basics of personal finance and investment in an easy playful way. This method of developing financial literacy is one of the most effective, because it involves the practical application of skills and makes it possible to see and feel the result from their use almost immediately. Today the most famous and popular business simulator is the Cash Flow game . There are both desktop and computer versions of the game. There are other online games that develop Cash Flow ideas, for example the game CashGO.ru . Among investment simulators, the service www.chartgame.com can be distinguishedwhich allows you to hone your investing and speculation skills on real historical charts of American stocks and compare your trading results with a passive buy and hold investment strategy.
Games allow you to test various assumptions and strategies in practice, while you can observe the result of your actions almost immediately, and mistakes and failures do not affect your financial well-being. Therefore, developing financial literacy through games is a fairly effective and enjoyable way of teaching financial literacy, which is suitable for both adults and children.
4. Attend financial literacy workshops, webinars, and courses.
In this case, you need to pay attention to which institution or company is conducting financial literacy courses. For example, seminars with a similar name from some brokerage companies and banks have the real purpose of attracting you as a client and selling you their specific products, so they should be treated with some caution. On the other hand, financial literacy courses organized by universities and independent financial advisors can be extremely useful. Especially if you don’t just listen to them, but start applying tips and advice in your daily life.
5. Develop the right financial habits.
For many people, developing just four good financial habits may be enough to improve their financial situation. These 4 good habits are:
• Avoid debt and loans – live within your means
• Start keeping track of income and expenses. Plan your expenses a month in advance.
• Always save and invest at least 10% of the amount earned immediately after earning income. And from the remaining money, pay for your usual expenses, starting with the most important ones.
• Be sure to consult your financial advisor before investing in any project or investment vehicle.
We recommend that you try this method of increasing financial literacy for yourself. It is not as simple as all the previous ones, as it requires more real effort from you and changes in your usual way of life. But you will immediately observe the effect of it: your well-being will increase along with the level of your financial literacy.
