Financial Literacy

(ARTICLE WRITTEN BY MARK VELLA, INVESTMENT MANAGER)

I have been opining for a number of years that education on finance is becoming ever more critical in this day and age, not only for investment purposes but also for our day-to-day financing needs. The term financial education, whilst generally has a direct connotation with education on investing, its wider use of the term is becoming increasingly important.

Your walk of life, status, income, age or any other demographic variable imaginable does not really matter; financial education is becoming essential for the average family trying to decide how to balance its budget, purchase a new home, cater for day to day needs, fund education for their children, and more importantly, budget and plan on what income s/he will be receiving upon retirement. It needs to be seen in the greater scheme of things. Not on an individual basis (how much can I save for myself), neither for the short term (how much money I require in 5 years’ time), but we need to cater for our family, for their needs, today and yes, as much as 30-40 years down the line.

People have always been responsible for managing their own finances on a day-to-day basis, such as cater for insurance spending, go on holiday, buy that piece of furniture – but recent developments in the financial world have made financial education and awareness increasingly important for financial well-being and standard of living.

In primis, markets are not what they used to be. They have become increasingly sophisticated. Investors are faced with an array of products and platforms from which to base their investment decision upon, with a large range of options. This makes financial education the most important and subsequently makes the responsibility and risk for financial decisions that will have a major impact on an individual’s future life even larger.

Pensions offered by governments for example are no longer sufficient to sustain a lifestyle post-retirement, which is leading investors to seek other alternatives away from government. With life expectancy increasing, people’s decisions on pensions is particularly important as this will ultimately determine the extent to which individuals will be enjoying longer periods of retirement. Individuals will not be able to choose the right savings or investments for themselves if they are not financially aware of what there is available in the market.

Financial education and literacy will go a long way in guiding individuals on their retirement plans and they will inevitably be more likely to save and to challenge (in a good way) financial service providers to develop products that truly respond to their needs. This, in my opinion, should have positive effects on both investment levels and economic growth.