Contrary to popular belief, you don’t have to be a banker or an accountant to be financially savvy. Being familiar with the personal finance space is also a big plus, granting you leverage to make wise financial decisions. Regardless of which walk of life you come from, or how old you are, it’s imperative to be in control of your finances and have good financial habits.
However, if terms like “peer-to-peer lending”, “robo-advisors”, and “cryptocurrencies” are unfamiliar to you, you’re definitely not alone. Despite Singapore’s reputation as a global financial hub, many Singaporeans, especially youth, are clueless when it comes to finances. Think back to your education journey — do you recall learning about essential topics like investing, insurance and managing credit cards? Most of us would say no, even if we did major or are majoring in niche areas of business, finance, or accounting.
This can be a problem as the financial landscape continues to evolve and grow. At the current rate of change, if we’re not equipped with the necessary skills, we could be left behind, or even worse, get into financial trouble.
Thankfully, with the recently introduced financial literacy program rolled out in polytechnics and Institutes of Technical Education (ITE), the new generation of students will get the chance to start building the foundations of financial literacy early. For the rest of us, however, it’s not too late! There’s a wide range of resources available to the general public, such as online resources, financial sections of the newspaper, and even free financial literacy courses.
Well, if you’re still not sure why you should start learning today, here are some reasons why you should strive to be financially literate as quickly as possible.
1. Steer Clear of Financial Problems You Can Avoid
Imagine driving a car at night without headlights on. You wouldn’t be able to see hazards like potholes or obstacles that would be easily avoidable if the headlights were on. That’s the same with financial literacy — with the right knowledge, you’ll be able to steer clear of otherwise obvious financial missteps, which could potentially be costly. Being in financial distress is certainly no fun at all and it can make life extremely stressful.
To illustrate, without good financial planning or budgeting, you run a higher risk of borrowing beyond what you can afford. While delaying repayments may seem harmless in the short run, it actually impacts several key parts of your life, including your ability to access credit or sign up for certain bank benefits. Moreover, when you do need the monetary boost for big-ticket milestones like an apartment or a car, loans may not be available to you either.
Financial mishaps affect everything, from family life to job opportunities. Family life is strained, and even if you currently have a stable job, severe financial problems such as bankruptcy will impact your job prospects and limit your opportunities. That being said, many of these poor financial decisions can be easily avoided, with just the right effort to know more about financial tools and seek out professional financial advice.
2. The Earlier You Start, The More Returns You’ll Get
In the financial world, compound interest is one of the most stable and simple ways to guarantee returns. You may even think of it as the gift that keeps on giving, especially over a long period of time.
Starting early means you get to take advantage of a longer time span to simply sit back and allow the mechanism to work on its own. For instance, let’s assume an annual return of 5%. In this case, a person who starts investing at 20 years old with $500 per month will end up with over a million dollars at the age of 65. In comparison, a person who does the same thing, but starts when he’s 30-years-old instead, will get a little over $550,000. As seen, making the decision to start ten years earlier or ten years later does have a significant impact in the long run.
Even if you deem investing in the stock market too risky a move, there are still options for you to reap the benefits of compound interest, especially here in Singapore. The Singapore government, for instance, guarantees interest rates of up to 5% per annum, including an additional 1% interest for the first $60,000 in your CPF account. All you have to do is invest your funds into your CPF Special Account (SA), under the CPF voluntary contribution scheme. The same rule of thumb applies — the earlier you begin, the more benefit you’ll be able to reap in the long run.
3. Budget Like A Pro
There’s a phrase that says money is the root of all evil, but if you think about it, money is actually the root of just about everything you interact with each day. From the coffee you get before work, to the pillow you rest your head on at night, money is used.
Unfortunately for most, if not all of us, money is a limited resource. All of us have to go through the process of allocating how much money to spend on what needs, and how much money to save for the future or rainy days. Naturally, we lean towards making decisions that allow for instant gratification, so without clear financial goals or planning, budgets can become easily misguided. Examples include spending more than what you can afford, living month-to-month, or having no funds set aside for necessary payments such as insurance, tax, or other emergency needs.
It’s no secret that cutting down on expenses is difficult — after all, who wouldn’t want to live a carefree life? But it’s important to prioritize things that truly matter to you, and have your spending reflect that. With a good budgeting plan, you’ll be able to strategize accordingly and make the necessary changes before it’s too late.
4. Pass It On
As previously mentioned, the financial landscape is continuously evolving and changing. In fact, one of the biggest changes we see in society today is the move towards cashless payments and e-commerce. As a result, money becomes less tangible as a concept, and more easily spent without a second thought. To thrive in such a society, one needs to be equipped with both financial knowledge and experience to appreciate the value of money.
While you may be aware of it now, there’s certainly a risk that the next generation will not. Digital banking natives are less likely to understand the real value of money, and how savings are a necessity. It’s up to you, then, to equip yourself so that in future, you’ll be able to teach your children about such matters, and be able to have informed conversations with them about this issue.
With all that’s been said, it’s now up to you to get the right tools to navigate the financial world. If you do things right, there’s no doubt you’ll be able to reap the benefits of the knowledge and experience it in your daily life. Having a strong financial foundation and adequate financial literacy is truly the key to making or breaking the bank.