Financial Literacy – 6 topics you should learn by your 20's



Isn’t it a shame to not have financial literacy in your school curriculum? Many students who excel in studies have shown a very worrying signs when they enter the real-world scenario. There are too many people who questions why schools teach differentiation and integration but fail to teach us on how to file taxes and how does the country’s GDP work.

This list is inspired by the book “Second Chance – By Robert Kiyosaki” who is a well-known author and his book “Rich Dad, Poor Dad” has been sold millions of copies.


1. Saving


We cannot emphasize more on the importance of saving money, especially when we are young.


Many young people are stuck between save your money for future or spend it now (YOLO). They are worried that they’ll be missing out if they focus too much on saving but the reality is that – the best time for you to save will be when you are young because when you are young there will be more time and energy for you to work for the extra money. Part time job or any side gig would help in tremendous way.


But ALWAYS bear in mind that’s saving money does not mean that you must keep them in bank – reason being is many young people forget to take Inflation to account. Your money will depreciate overtime due to inflation thus finding the best way to grow them is something you should consider.


2. Using Credit


People use credit all the time for different things, but many don’t fully understand what they get into when borrowing money. This is one aspect of financial literacy you should learn by the time you’re a grown adult. The laws in many developed countries are set out to protect everyday people like us. They require lending companies to be super transparent with all the fees and terms when they lend money. This WOULD help consumers, IF they knew what all the terms meant.


Credit cards are one of the most notable forms of credit for everyday people, but so many people don’t understand how they work.


You should know how to compare different choices when seeking credit. Companies vary in terms of what they offer: interest rates, initial fees, late fees, and more, If you don’t understand what these are then how can you compare your choices? Also, you should understand how the cost of borrowing is going to affect your purchase. There are situations where the borrowing cost is reasonable (ex. purchases a home with a mortgage) and situations where it’s totally unreasonable (ex. Overspent credit card debt).


Everyone has a credit score, which is how lenders evaluate the risk from lending to you. Many factors can affect this score and knowing each one of them is an added advantage for you.


3. Financial Investing


Investing the money, you have saved is a part of financial literacy that many are clueless about. You need to understand the concept of risk/reward.


“Safer” investment options often have lower potential returns, and vice versa. You should know what type of investor you are based on your tolerance for risk. You should know diversification and how to minimize the risk from a single type of investment.


One way to diversify your investments is to do so geographically – many countries are heavily weighted in one sector.


There are also the costs of investing. Many people neglect the taxes paid on investing profits. Many don’t realize how commissions and fees really hurt your account in the long run, understanding these 2 topics will help you make wiser investment choices.


Bear in mind that emotion has NO place in investing. Psychology (and common sense) dictates that using an emotion-based decision-making process may lead you to make poor decisions.


This aspect of financial literacy requires you understand where bias comes from and how to eliminate it when investing.


One common bias is familiarity bias: choosing solely companies you are familiar with. I mean, obviously if you understand how a business works you would be better tailored to evaluate how the company is performing.


But choosing a company or an investment based on where the crowd goes is something you should double check.


4. Buying goods and services


This might seem silly: why do you need financial literacy to be able to spend money? And the answer is simple; making informed spending choices.


You should know your rights as a consumer, as well as how to research and compare products. The ability to read through sneaky marketing is a skill you learn overtime.

Why do you think retails allow monthly installment? Because asking you to pay RM150 monthly sound somehow convincing than forking out RM1500 in onetime payment.

Retailers make more money from you through the interest that they are charging to you but often we overlook the amount because it is significantly low. Remember to always calculate the accumulated price before you make any purchase.


There is also knowing how to save money on your purchases. Thanks to online platforms where you can compare prices and pick the best offer.


5. Earning Income


Earning money is somewhat more of an economics topic than a personal finance. You need a basic understanding of economics (mostly supply/demand) to understand what drives employees’ wages up or down.


Another inevitable factor is Taxes. Knowing what taxes, you are obliged to pay, as well as how to properly file your annual tax return, is an aspect of personal finance. As the famous saying goes:


“In this world nothing can be said to be certain, except death and taxes.” – Benjamin Franklin


In order to pay the optimum amount of taxes, you should know how to differentiate types of income: active income – salary from job and passive income - property rentals, investment income, etc.


6. Protecting and Insuring


Insurance is very important, and it is a topic that differs depending on where you live.

You should know what types of insurances are out there, and how it works for you. For example, car insurance is legally required in Malaysia. The extent of coverage that you require depends on your NCB. Other important types of insurance are home insurance, medical insurance, and life insurance. You need to be able to read the fine print (or consult someone who can) to make sure you are getting the coverage you want and need.


Extended warranties on products like cars or smartphones can be considered “insurance” as well. Someone who is financially literate would be able to evaluate the warranty - what it covers, how it fits with their personal situation, what it costs and decide if the cost of the extended warranty is worth it.


One last thing is to have a grasp of how insurance works; it is all a number game.

Lower risk = lower insurance premiums. There are often things you can control, such as your driving habits and choice of vehicle. Making some changes can bring down your premiums significantly. There are some things you cannot control, however. For example: unfortunately, if you have significant health problems, it may be harder and more expensive to have medical insurance or life insurance.


“Buying a life insurance is like fixing a leak in your roof…. The longer you wait, the more expensive it gets.”


If you’re reading this and you’re likely already over 20. Don’t be upset if you didn’t know all these things. Now that you have a sense of everything you need to know, you can start learning more about the things you don’t already know. There are plenty of resources online to help you get started, especially on monest.biz. We are working with lots of economist and traders and we keep our self updated on daily basis on the economical news and ways to improve your financial literacy.


If you found this article helpful, be a good friend by sharing this on your social media, so your friends, brothers or sisters can become financially literate too.


Only by learning we improvise and only by sharing we will strive.


By Suren Subramaniam | 18 August 2020

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