As inflation rates rise, a global recession looms and the chatter around cryptocurrencies replacing fiat money persists, the importance of financial literacy has never been more evident.
Some argue that personal finance not being taught in school curriculums is a general failure of the education system to identify the most relevant skills that pupils and students should possess.
Others claim that it is a parent’s responsibility to ensure their children are financially literate. Irrespective of which of these sides is correct, the fact remains that, as adults, we are all responsible for managing our finances.
Yet, global data shows that only 35 per cent of men and 30 per cent of women are financially literate, according to Standard & Poor’s Global Financial Literacy Survey.
If you are not a part of the 33 per cent of adults worldwide who have sufficient financial education, here are some things you can do to be better informed so that you can pay off pending debts and save for retirement.
Diversify your assets
Diversifying your portfolio to encompass various asset classes can reduce your financial risk.
This can include investing in stocks, bonds, cryptocurrencies, property and other assets to ensure no single one can bankrupt you.
Although rising inflation rates are out of your control, you can still take advantage of them by hedging your investments in financial assets that prosper during such times.
Consider banks, for example. They provide loans and collect interest on them. With inflation causing higher interest rates, lenders generate higher profits from their loans.
Similarly, you can invest in assets such as gold and real estate, which have been traditionally preferred as good hedges against inflation.
Some investors even prefer investing in stocks with the hope of offsetting inflation in the long term.
As Warren Buffett says: “Diversification is protection against ignorance.”
Pay off your debts
Whether it is a student loan or a mortgage, make sure you pay off your debt as soon as possible.
Global debt — borrowing by governments, businesses and people — is at dangerously high levels.
In 2020, global debt was at $226 trillion, according to the International Monetary Fund. But it reached a record $303 trillion in 2021 to reflect the biggest one-year debt surge since the Second World War, the Institute of International Finance said.
Covid-19 contributed to this significant increase as it caused high spending on measures to protect jobs, lives and livelihoods.
Furthermore, global turmoil is adding risks to unprecedented levels of public borrowing and the current debt wave is the world’s fourth since 1970, according to the World Economic Forum.
Watch: What is a recession?
High levels of debt can force households to cut some areas of spending, such as food or fuel. While it is never pleasant to have to dial back your budget, it is essential to secure your financial future.
By focusing more on saving, you will be able to rid yourself of any pending debts, build an emergency fund, avoid reliance on credit if your car breaks down or home appliances need to be replaced, and save for retirement.
Save for retirement
Even affluent people worry about retirement.
A 2021 survey by Natixis of people with at least $100,000 in investable assets found that 42 per cent worry that retirement won’t be an option for them.
This was a clear sentiment across the 24 countries in Asia, Europe, Latin America and North America that were included in the survey group.
Moreover, 62 per cent of those polled, despite being part of a group in which more than half rate their investment knowledge as strong, said they need professional advice selecting investments in their retirement plans.
With the wealthiest investors seeking financial advice, enhancing your knowledge in this space is crucial.
In today’s world, there are infinite resources and opportunities to do this, but it is vital to apply what you learn as theory is nothing without practice.
For instance, if you learn about commodity trading from YouTube channels, make sure you do it on a reputable platform.
If you still don’t feel comfortable, at least you are now better educated on the subject and can reach out to a wealth management platform to help you build your wealth, while having a better understanding of what’s going on every step of the way.
Globally, Denmark, Norway, Sweden, Canada, the UK, Germany, Australia and Finland have the highest financial literacy rates, which range between 63 per cent and 71 per cent, according to the S&P Global survey.
There is still a sizeable gap in global financial literacy rates that needs to be addressed and these tips are only a few of the many that can help us get there.
Even if you have not started or you are still behind, there is no better time than the present to get ahead.
As the Chinese proverb goes: “The best time to plant a tree was 20 years ago. The second best time is today.”
Bas Kooijman is the chief executive and asset manager of DHF Capital, a securitisation company for financial services.