Financial Education: A Way Towards Financial Independence
Why do schools do not teach financial literacy? Should it be taught at home and should be coming from our parents? What if the parents do not have the fundamental knowledge of financial education?
We are mostly told to follow and pursue our passions. To be a hardworking student, get good grades, graduate, and go into a good job, and pay the bills.
This is an important teaching to us as it gives us the foundation for pursuing what we love to do.
On the other hand, this type of cycle continues where we work in our job and pay the bills up until retirement while acquiring only a little knowledge on financial education all over our lifetime.
Rat Race
The rat race concept explained by Robert Kiyosaki, the author of Rich Dad Poor Dad narrates how an employee works hard for an employer to receive a raise or a promotion and as their income increases, their expenses increase as well.
As the employee’s debt increases, he or she becomes further tied to their job and more reliant upon their paycheck. Furthermore, they are forced to work harder for their next promotion to offset their debts (Vimbai, 2015).
The question lies: are we aware of our expenses? Would this be sustainable for the longer term? What if I am now 80 years old, do I have the resources or sound money to support my life?
This data from the S&P’s Global Financial Literacy Survey shows the financial literacy rates around the world.
Financial literacy around the world appears strongest in countries with developed and advanced economies, especially Western Europe and English-speaking countries. While on the lower levels, are mostly third world or emerging countries.
Philippines
Governor Benjamin E. Diokno of Bangko Sentral ng Pilipinas (2020) cited survey data that show Filipinos have little understanding of compound interest, the effect of inflation on buying power, and investment risk.
The World Bank data in 2017 indicate that only 34.6% of adult Filipinos have an account with a formal banking institution while the rest of the population rely on non-banks to obtain financial services.
Mr. Diokno also cited more than a third of Filipino adults struggle to meet their regular spending needs and resort to loans when emergencies arise (BusinessWorld).
As we understand this, we desire to have a curriculum where financial education is included and taught to students in order to realize the opportunity cost and value of it in the longer term.
Inflation
In my previous writing regarding inflation, I have talked about how it impacts our money as it decreases our purchasing power, and I presented a data on how the price changes increased dramatically in different sectors. See the link below:
There is an important factor that everyone in this world must and should know that inflation impacts our purchasing power.
The central banks continuously keep printing money and would possibly cause inflation and taxation rates to go higher. Some say the cause of inflation would affect higher wages, but we might not be certain that could likely happen.
The fact that Original McCafe Iced Coffee in Mcdonalds is priced for 40 pesos in the Philippines as of 2021. We might expect it to stabilize but the trend is always higher. The prices continue to increase in the long term.
This is alarming and we must find ways to find a hedge on it.
The graph shows the purchasing power of various assets over time. The value of 1 dollar at 1700 towards today (2020): you could purchase worth 0.02 cents.
Among those assets in the graph, also narrates which kind of asset could be used as an inflation hedge.
Psychology of Money
“Live below your means and be patient.” — Morgan Housel
People desire to be financially independent because they want the freedom to do the things they want and love to do without worrying about bills or expenses to pay.
Yet as many opportunities have come, people want to get rich quickly and think that making money in the short term is the faster way towards financial freedom.
In handling money and investments, the more emotional a person is, the less likely the person would get what financial independence means to him or her.
It is important to play the long game and see the magic of compounding by being patient as the money you have earned lets it work for you.
Regardless of how eager or hardworking you are when it comes to attaining money, if you are emotional, it would be hard and difficult to manage.
If we think about the long term and the impact of inflation, it guides us to delay gratification and think which things are worth the purchase that will make us happy.
Passive Income
One of the lessons in the book called “The Richest Man in Babylon” by Georgle Samuel Clason states “Let your money work for you.”
There would be a time where our bodies are not capable to work for long hours. When we are now old, it would be hard for us to sustain the workload that we had during our younger years.
As we continuously learn the opportunities around the world, there are many possibilities for growing our wealth.
Throughout the invention of the world wide web or the internet, many opportunities were created and accessed by all of us. Google, YouTube, books, mentors, and etc. opened doors of possibilities and knowledge to us on making wealth.
The values that we need to continuously learn and understand as many as possible are persistence, discipline, faith, and humility.
Among them is investing in the financial markets (stocks and mutual fund), cryptocurrencies (blockchain technology), commodities (gold, silver, copper, and etc.), and creating a YouTube channel that adds value to the community and letting it grow and earn passive income, making a podcast or a blog where you could monetize it by affiliate marketing and advertising.
There have been many passive income ideas besides mentioned above. As long as it is legitimate, secured, and you know what you are investing before taking risks is a good foundation for letting your money compound and work for you.
Put the Work
This comes no easy…
When it comes to learning to invest and make our money grow, it comes with sweat and taking risks. Being bold and confident in experiencing things that you have not tried and learning from it is a great way towards the path of financial freedom.
“Luck favors the prepared mind.” — Richard Hamming
Learn and do the things you love and many chances and opportunities would knock you. Work hard, be smart, and be kind and good to everyone.
As you learn and experience a particular asset that helps and teaches you, it is remarkable to add value to others in order to help them and add fuel to what they desire in life.
Learning is Valuable
Learning is the most important skill to understand something. As discussed, there have been many doors that are welcomed to us as the power of the Internet provided an abundance of knowledge.
To be 1% percent better every day: continuous improvement is a journey where we move forward to our lives being better than yesterday.
Life is volatile. There are successes yet there are also failures. We must have a growth mindset to learn from failures and experiences just like when we were a baby, falling and learning to walk.
Purpose of Financial Education
Most of the world does lack financial literacy because is not probably taught in schools leading to generations where we are mostly taught is to study hard, work and get a job and pay our expenses.
To get it started, there are few books have that be an important resource in studying financial education and one of them is “Rich Dad Poor Dad” by Robert Kiyosaki, an eye-opener book towards learning financial education, and “The Richest Man in Babylon” provided some key lessons and stories on protecting our wealth and letting it grow.
Furthermore, we may not be equal in terms of opportunity, chance, and even luck as the government is manipulating or inflating the supply of money and increases the prices of goods.
Somehow, it must not stop us from reaching the goal that we want and are capable to live in our lives: Financial Independence.
Let us spread light, help each other, give value and inspire others.
References:
- Couyoumjian, C. (2019, October 16). 5 Reasons Why Financial Literacy Is Not Taught in Schools, According to Cindy Couyoumjian. https://medium.com/@cindycouyoumjian/5-reasons-why-financial-literacy-is-not-taught-in-schools-according-to-cindy-couyoumjian-7e691367c4b5
- Vimbai. The Rat Race — as defined by Robert Kiyosaki. https://handleyourowncashflow.wordpress.com/2015/06/10/hello-world/
- Noble, L. (2020, July 12). Lack of financial literacy hindering people in dealing with pandemic, Diokno says. https://www.bworldonline.com/lack-of-financial-literacy-hindering-people-in-dealing-with-pandemic-diokno-says/
- How Much. (2018, November 13). What is the Financial Literacy Rates Around the World? https://howmuch.net/articles/financial-literacy-around-the-world
- Rose, J. (2020, March 3). 4 crucial lessons from ‘Rich Dad, Poor Dad’ that changed the way I think about wealth. https://www.businessinsider.com/personal-finance/rich-dad-poor-dad-lessons-wealth
