Financial Education
What is financial education? Well, the most basic definition for this term would be ‘learning how to manage your money.’ How to spend it, how to pay your bills, how to borrow and save money and how to plan for retirement. This is what it means to be financially literate for millions of people around the globe. However, there is more than meets the eye to this term. One of the key aspects of being financially literate is to know the difference between an asset and a liability.
Most people think they know this, but the truth is they do not have the foggiest clue.
Many people have this dream of getting a respectable job and then buying a new house. And why would they not? Why rent when you can buy it, right? The house you purchase to live in will eventually appreciate making buying the right choice, right? WRONG! A home is not an investment because it does not pay you every month. In fact, you must pay it every month which is why it is a liability. Now this does not necessarily mean that you should not buy a house. What it means is that you should not consider your house as an asset but as a liability when buying it and therefore only buy it if you have the capital to afford it. Put it this way if your house expenses are 200,000 a year, your income should be at least double this value, preferably more than double. Then and only then can you truly afford this liability.
Part of financial education is realizing that jobs are not the solution to many financial problems but are in fact the cause. Jobs are a remarkably interesting thing. We are taught, in school, that study hard, get a college degree, land yourself a high paying job and your life will be cake. But this is far from the truth. The only real people that benefit from your job are the government and your employer. Think about it. By the time your pay cheque reaches you, the government and/or your employer have already taken a piece of it, as is their right. Moreover, when people get fed up with their jobs or feel like they are not being paid enough, their next move is to blame the system for high taxes or blame their employer for not getting a raise. These people then end up working till the age of 60, because in their mind, money will solve all their problems and so they end up working for money instead of learning how to make money work for them, which is what financial education is all about.
These are the very people who are firm believers in ‘money cannot buy happiness’ but are willing to work 8 hours a day, 5-6 days a week to earn money. Financial education is extremely important for all those who wish to live a life free of financial troubles
Grade: IGCSE-III
RMS Notting Hill Campus