We often talk about financial literacy, money management and the like. No one, in general, doubts that this is the basis of financial independence. Therefore, in my opinion, it is very useful to determine what financial literacy is, which, roughly speaking, sections are included in the “curriculum” on this subject. Then we will be able to evaluate ourselves – what knowledge and skills are already there, and which ones would be nice to acquire.
So, let’s define what should be included in the “baggage” of a financially literate, savvy person.
1. First of all, this is knowledge about money in general, how the world economy functions, knowledge about stock markets, general economic concepts like inflation. In order to obtain such knowledge it is enough to scroll through the textbook on economics.
2. Especially applied knowledge concerning the handling of money in the part relating to each person. First, where does the money come from (active and passive income)? How to manage your money efficiently, how to save money correctly and should it be done?
3. General knowledge about investing: what investment is and why it is needed, what are the ways of investing money (investment tools), what is their fundamental difference, what are the possible risks and returns, what is suitable for short-term investment of money, and what is for long-term and etc.
4. And finally – applied knowledge about investing. When, how and in what to invest. Understanding the situation in the stock market (or the real estate market, gold), the ability to make predictions and consciously plan investments.
The second and third component will easily teach any book on personal finance. (Another question is how well and correctly it will teach, but the main thing here is a certain base, a well-formed thinking, and then a person comes to the whole self).
But with the fourth component, problems usually begin. Usually, in the family budget guidelines, this practical component of financial literacy is mentioned somehow, as if it is enough just to know the definitions of mutual funds or bonds. Here you need to go to other books, and, first of all – to your own experience. It is necessary to start, but don’t stupidly carry money somewhere (and then sit and wait for the money tree to grow), but rather carefully and carefully approach the investments, analyze, track, calculate every market that affects them.
You can start with investments in index mutual funds – and analyze the dynamics of the stock index, trying to understand and predict it.
ps I think that financial literacy can also include an understanding of the legal (legislative) framework for investment, business and taxation. It is always useful, and often just necessary.