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Six Ways To Improve Your Financial Literacy

ICICI Securities 15 Mins 03 Feb 2023

As a professional, you work quite hard at your job and get excellent rewards monetarily at work. You slog for many years in order to grow rich over time. But all those efforts would be fruitful only if you can gain control over your money matters and plan well for goals. The starting point for you to be on top in such matters is financial literacy. And educating yourself on financial aspects must start early on in life, preferably in your teens or latest by the time you start working.

What does being financially literate mean in the first place? It includes your ability to make your personal budget, understand the basics of investments, loans, insurance policies and so on. In other words, financial literacy is an important step towards managing your own money matters. You must know the elementary aspects financial products, investment avenues, interest charges and understand the concept of a credit score or how taxes eat into our savings. Financial literacy is not to be confused with in-depth expertise or as the ability to become a full-fledged do-it-yourself investor, both of which are skills developed over many years and with continuous ongoing learning along the way.

We discuss here why you need to be financially literate and how you can go about becoming an informed investor, borrower, and saver.

Why is financial literacy important?

Becoming financially literate is not a choice, but a necessity for all of us dealing with money in every stage of our lives. How does it help to be a financially literate person?

Makes money management systematic: Making a monthly household budget by putting down hard numbers on how much you spend on various items, repay as loans and what remains as savings after taxes, will be made robust as a process with greater financial awareness.

Enables understanding of financial products: There are investment avenues – stocks, mutual funds, bonds, fixed deposits and the like – and financial products such as loans, credit cards, insurance policies (health, term motor etc.). Further, you would be able to make sense of interest rates, investment returns, credit card charges, credit scores.

Decreases chances of facing mis-selling: When you have reasonable financial literacy, you can make better choices on which products you must buy or invest in and which ones to avoid. By asking the right questions based on your awareness, you can avoid any unsuitable investment or insurance policy being pushed down your throat and help yourself take better decisions.

Helps plan for all your life goals: Once you have the basic knowledge of your personal finance, you will know how much to save, where to invest, for how long and what risk to take, so that you reach all the money goals in your life – children’s education, their marriage, property purchase, retirement etc. You will also be able to make out good financial advice from undesirable suggestions or tips.

Ways to improve your financial literacy

Read business newspapers and magazines: The first good step you can take towards financial literacy is going through one or more business newspapers. In addition to corporate news and financial results of companies, most newspapers and magazines would also have a personal finance section. These entities discuss features of various financial products, review various investments, carry interviews of market and industry experts, and educate investors on various developments to make informed decisions. You must make reading an everyday habit to be on top of, or at least reasonably aware of the what’s happening in the financial markets.

Go through the websites of brokerages and mutual funds: These are free resources available on tap for investors. Most large brokerages and mutual funds have detailed sections on investor education. From the basics to the most advanced concepts, everything is discussed in detail in many of these websites. Many free articles and blogs cover a whole host of topics on personal finance, goal planning, market developments, economic factors and the like. There are also detailed presentations on specific investment concepts, products and so on.

You also have online calculators for helping you get a good idea of how much you need to save for various life goals. There is a wealth of information available for educating yourself on investment basics.

Browse leading personal finance blogs and listen to podcasts: There are many blogs where the topic of discussion is restricted largely to personal finance. From investments to insurance policies, to loans and credit cards, these blogs discuss a wide range of topics. The authors are often financial experts in a host of fields – investment advisors, mutual fund or other product distributors and research analysts among others.

Apart from discussing mutual funds, stocks, bonds, financial gold planning exercises, early retirement challenges, these blogs also recommend specific investments and conduct their own product reviews. However, given that most of these blogs are for free and many of the writers may also have their own vested interests in the form of pushing specific products for commissions, you must use the information and recommendations from these blogs only to enhance your understanding of personal finance and not act on the advice without taking expert personal help.

Subscribe to online newsletters from specialised players: There are mutual fund rating websites that also offer content on a host of other personal finance topics. Then there are firms that give specific recommendations on products and write on market trends. Often, these portals or firms are run by seasoned analysts and product experts. These entities largely have only an online presence and charge an annual fee from subscribers. From basic information to deep analysis on products, you get access to a lot of useful material.

These portals send regular updates on products, changes in any recommendations and alerts on new investment opportunities. But the challenge here is you will not get any personalised advice and will have to assess the merits of the recommendations yourself.

Selectively peruse social media: The reach of social media, especially in a post-COVID world, has resulted in thousands taking to Twitter, You Tube, Instagram and such other platforms to give financial ‘advice.’ Social media influencers and other so called experts put out presentations, videos and podcasts on a whole host of personal finance topics, and more specifically on financial products – insurance policies, stocks, mutual funds, bonds, futures & options, loans and credit cards.

Some are genuine, while the credentials and the authenticity of most others are not above board.

You must trust information from social media only if it comes from someone who is trusted in the offline real world as well. Even so, you should not rush to act on any advice or tips. Any get-rich-quick tip or advice is to be shunned without second thought.

Engage with a financial advisor: When you do not have enough time to manage your money, you must take the help of a registered investment advisor or expert. An investment advisor is expected to give you impartial advice and help you reach your goals taking into account your risk appetite, time horizon and available surplus. There is no doubt that a good investment advisor can clarify many concepts and give you authentic information on all your money matters. But he or she may still not have the time to go over the basics for your sake. To ask the right questions, gauge if the expert is giving you authentic advice and ensure that he or she is charging the right fees, you still need financial literacy!

Disclaimer: ICICI Securities Ltd. (I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. I-Sec is a Member of National Stock Exchange of India Ltd (Member Code :07730), BSE Ltd (Member Code :103) and Member of Multi Commodity Exchange of India Ltd. (Member Code: 56250) and having SEBI registration no. INZ000183631. I-Sec is a SEBI registered with SEBI as a Research Analyst vide registration no. INH000000990. AMFI Regn. No.: ARN-0845. Name of the Compliance officer (broking): Ms. Mamta Shetty, Contact number: 022-40701022, E-mail address: complianceofficer@icicisecurities.com. Investments in securities markets are subject to market risks, read all the related documents carefully before investing. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The non-broking products / services like Research, etc. are not exchange traded products / services and all disputes with respect to such activities would not have access to Exchange investor redressal or Arbitration mechanism. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. Please note, Mutual Fund related services are not Exchange traded products and I-Sec is just acting as distributor to solicit these products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investors should consult their financial advisers whether the product is suitable for them before taking any decision. The contents herein mentioned are solely for informational and educational purpose.


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