Top Tips for Financial Literacy
One of the biggest takeaways from this year’s annual GiLE4Youth Conference was a superb presentation by Martin Cooke of the International Trade Institute in Taiwan, on top tips for financial literacy.
This presentation was incredible as understanding it can enhance your competitiveness on the employment market as a young person and also improve the quality of your decision making and life choices.
Image from Unsplashed.com by @franckinjapan
Why is Financial Literacy More Important than Ever?
The ability to understand finance, the value of money, and to be able to make smart decisions as well as to understand the financial consequences of your financial decisions, is one of the most sought-after skills for young people as they enter the employment market. Unfortunately, these skills are not taught in most conventional educational systems throughout the world.
The Gap…and Opportunity!
Colleges and Universities tend to concentrate on the ‘so-called’ hard skills related to the core areas of your chosen fields, be it in medicine, engineering or in the social sciences, thereby making young people vulnerable (more so in those societies which celebrate consumption and consumerism) leading to regrets later on in life when such lessons are learnt through bad financial decisions, leaving you to echo the words of Martin Cooke, “I wish I had known this when I was eighteen”! For Martin, a young person must not live a life of regret! Hence, the importance of this presentation at this year’s annual conference.
Life and employment are both basically about the quality of the choices that you make. Financial literacy and understating the consequences of decision making around finances, inculcates into you an awareness and sharp perception of not only the best ‘financial’ decisions to take but also makes you understand and foresee the long-term effects of, and the unintended consequences of bad financial decisions.
50/30/20 Income Allocation Model
Martin proposes the 50/30/20 income allocation model to personal monthly budgeting. How does this work? Simple! 50% goes to bills, rent, transport, food and essentials, 30% goes to entertainment and non-essential items and 20% goes to savings and debt elimination. Of utmost importance, Martin however advises that you always base your budgets in the specifics of your environment. With reference to himself, he bases his decisions on the Taiwanese context. In Taiwan, upon graduating students are more likely to buy and drive scooters than cars and eat in a restaurant every day for the whole year. It is normal and cheaper than cooking at home.
A Word of Warning!
Martin warns against gullibly imbibing any literature on financial literacy and budgeting, instead urging that one should always apply these principles to one’s context.
He recommends prudence when estimating a salary as a basis for budgeting (use an estimated salary of a graduate in your country, region and industry).
Nine Simple Steps to Financial Freedom!
Martin outlines below an eight-step process that may be universally applicable (the nineth one is mine!)
Getting off the Block
1. Analyze your purchases and ensure that you are spending within your limit.
2. Budget forwards, not backwards. Give every dollar a job, pay yourself first. Take into consideration sudden, unexpected costs (again in the context of your country and these differ from country to country. In Taiwan for example, one’s scooter can be damaged by a typhoon or cyclone, which may not be common to citizens of Hungary).
3. Keep a record of all your purchases.
Consolidating the Gains
4. Identify regular, irregular and discretionary expenditure. Classify your expenditure accordingly. Decide how much is discretionary and how much is essential? Stick to your limit.
5. Make the above step a weekly routine or habit.
6. Set up three separate bank accounts. One bank account for your salary and payment of bills, a second account for discretionary expenses and the third one for emergencies. Depending on your context and personal circumstances, try to build your reserve fund to three months’ salary.
Financial Freedom is in Sight!
7. When you have filled up your emergency fund, focus on debt elimination.
8. Think Investment and Passive income. Start considering investing in different investment options, again depending on your context to create multiple streams of income
9. Go back to step one and repeat the cycle!
Enhancing your Personal Professional Development
Well, understanding financial literacy and responsibility may not be explicitly set out in most potential employers’ job requirements (yet!) but it is definitely a skills set which will set you – possibly worlds – apart from your peers and competitors in this glocal employment market. This was definitely a great presentation by any standards and putting these skills into practice will NEVER make you look back and say, “I wish I had known this when I was eighteen!!”, because your decision to attend this year’s GiLE4Youth Conference (or even just to read this article) has made you a lot wiser! Martin teaches his audience something which they generally don’t teach at college, at least not with this emphasis!
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