Edited by Nna Rejoice and Toluwalase Solanke
(Across many countries, including Nigeria, graduating with good academic knowledge while still deficient in the understanding of how money works is the reality of many students.
While in school, students make small financial decisions, but upon graduation, they have many more to make. Knowledge of core principles such as earning, spending, saving, investing, and managing debts is essential. Hence, the need for financial literacy.
Financial literacy is the ability to manage money effectively. It includes skills like budgeting, saving, investing, debt management, and financial planning. In simple words, it involves knowing how to make your money work for you, not against you.
The Truth About Finances That Schools Don’t Teach.
• Earning money does not equal building wealth; Schools focus on preparing students to get certified to get jobs in the future. However, it is necessary to establish that income is distinctly different from wealth. Income is what you earn, while wealth is what you leave to grow over time.
• Having a budget is telling your money where to go; a budget lets you have control over spending, thereby disabling impulsivity. A simple and commonly adopted budgeting method is the 50-30-20 rule. Analysing this means 50% of your income is spent on needs, 30% on wants, and 20% is saved or invested. A large percentage of people, however, do not know how to spend money within a budget. This contributes to the feeling that money disappears without explanation.
• The real value of saving is often underestimated; Many students are taught to save but don’t know why or how to. Truth is, saving isn’t enough because of inflation, but it is important in case of emergencies, and to avoid debt. Inflation decreases purchasing power. Keeping money that isn’t working for you lets it depreciate as prices rise. There are high-yield paying savings apps and platforms to help prevent this. Automating savings can help build discipline and consistency.
• Invest to make money work for you; It is one of the most powerful financial tools, but is rarely taught in schools. Investing can take different forms, such as stocks, mutual funds, real estate, and so on. Investing works by compounding over time. While investing, it is important to be able to differentiate between what will appreciate and what will depreciate.
• Debts; There exist the good, the bad, and the dangerous. Schools don’t explain the differences. Good debts promote growth. For instance, it can be a loan taken to expand the business. Bad debts consume money through high interest rates. Dangerous debts are debts accrued to maintain a lifestyle. The important lesson is to use debt as a tool if and when necessary.
• Being disciplined financially beats knowing finances; Knowing what to do isn’t enough. Doing it consistently is what matters. Many people know they should save, budget, and invest, but delay or don’t do it. Discipline is what turns knowledge into results.
• Relying on a single income source is quite risky; Schools promote being educated, getting a job, and earning a living. Realistically, having more than one source of income helps to increase the chances of financial stability. Freelancing, investing, acquiring digital skills, and having side businesses are some options that individuals can explore.
Final Thoughts
The education system teaches how to pass exams, but not how to manage life financially. Financial literacy fills that gap. The mindset of individuals regarding money, however, also matters. Financial growth essentially starts with mindset. It is important to debunk myths about wealth, which can be a limitation to its creation.
Read Also: 3 Best Budgeting Apps To Manage Your Finance
