Why we all need to be financially astute
by Alpha Ngadan
‘Finance’ might be a common word but how many people actually know what it means? Finance students at Curtin Sarawak know the definition of the word very well through their ‘Principles of Financial Management’ unit and other units of their undergraduate programme. Put simply, ‘finance’ or ‘financial management’ is concerned with the maintenance and creation of economic value or wealth.
The need for financial literacy is no longer an option but a prerequisite for just about everyone. It might have once been of concern to only financial analysts, investors, fund managers or wealth/estate planners, but today, so long as you earn money, you need to know about financial management and all the jargon and practices that go with it.
I concur with the likes of well-to-do philanthropists and businessmen like Robert Kiyosaki (author of Rich Dad, Poor Dad), Steve Jobs, Warren Buffet and many more. Two things they have in common are humble beginnings and frugality. In addition, they had to go through tremendous hardship and trying times to get to where they are today.
Many sceptics might say, “So what if I don’t have financial knowledge or finance quotient and I’m lazy to learn new things? Why can’t I just ignore it and go on simply collecting my monthly pay checks and living a hassle-free life?” To me, such an attitude can be described in three words: living in denial.
We are bombarded daily with advertisements for a myriad of consumer products – from candies to sports cars. The lure of advertising can be very strong and hard to resist. Very often, we are compelled to purchase these products.
The sales industry is booming and evolving like there’s no tomorrow. Every business, be they offering goods or services, wants your money. There’s no hiding from their continuous bombardment of advertisements, much of which can be considered spam.
Gone are the days when advertisements could only be found in newspapers and magazines, on television and the like. Advertisements can now be found everywhere. The World Wide Web has revolutionised advertising into a multi-billion industry, and our mobile phones are consistently being ‘attacked’ by spam text and picture messages.
Ignoring this phenomena would be like living in a shell. With the amount of bills and commitments one has, and regardless of one’s financial standing, one has to keep in check his or her cash outflows and inflows. Otherwise, one could end up being one of those whose funds are almost or entirely depleted by the middle of each month.
Therefore, financial literacy is a must, and not just for investors. A very famous saying goes; He who fails to plan, plans to fail. Similarly, in finance, it is important to be able to plan one’s finances personally. Here’s a simple example: Upon graduation, students will be involved with the community and have their own family. Thereto, they will be trying to decide how to balance their budget, buy a car or a home, get married, fund their future children’s education, ensure a proper pension plan, or even buffer funds during emergencies. The normal graduate will not bother to scrutinise their future expenses and monthly earnings as they are very anxious of their first time earnings.
All the glam and glitter of electronic gadgets such as the iPad 2, iPhone 4 and Galaxy Tab and the latest lifestyle trends will easily lure graduates into purchasing such goods. Not forgetting the need for a decent car to get around. With the latest editions from Proton, Toyota, Perodua and other models, to name a few, all it takes is just a phone call to the car dealers and they’ll come rushing to your door.
For those car enthusiasts, the urge to soup up and accessorise their cars can also lead to such fallout. Similarly, ladies with a penchant for the latest trends in fashion can easily be caught off-guard financially. Gone are the days of late gratification and planned spending.
This lack of financial discipline or impulse buying could lead to bigger problems in the future. This happens to be a common trait among graduates. Realising the importance of personal financial knowledge in today’s world, many universities are incorporating personal finance in their curriculum.
Undeniably, financial education is extremely essential to both current and future professionals. All responsible adults should take the initiative to learn a thing or two about finance-related areas.
As a start, one can make simple recordings of expenses. Take note of any upcoming expenses, be they monthly commitments or one-time purchases. Make a list of outflows. Next, check for expenses that can be tightened. For example, certain products that are considered costly can be replaced by slightly cheaper ones, and annual holiday trips can be delayed for better savings.
Allow me to borrow a tip from Rich Dad Poor Dad: Always pay yourself first. Try to learn the difference between financial assets and financial liabilities; focus on accumulating more assets that will give financial returns and avoid those that are considered liabilities.
To know more about this, one can read various blogs that provide financial tips on everyday spending. There are also personal finance magazines such as The Edge, Personal Money and Smart Investor, to name a few, which are available at almost any bookstore.
Like in the famous biblical saying “Seek and ye shall find”,the bottom line is, if one is keen to find something, one eventually will. The same thing goes with the need to equip oneself with financial knowledge. Yet another simple yet beneficial practice is, while you are surfing on the Internet, make it a practice to seek articles that provide tips on how to invest or how to save with better returns before updating your status in your social network. I believe people spend too many hours unnecessarily on social network sites anyway, rather than focusing on acquiring knowledge about real life issues like personal finance.
To conclude, never stop learning. Learning makes life more interesting.
Alpha Ngadan is a lecturer in Economics & Finance from the School of Business, Curtin Sarawak. He has 3-year top management experience as a Director for Labuan Container Terminal and 5-year experience as an Assistant General Manager in Jasib Shipyard & Engineering, overseeing terminal operation in major container terminals in Malaysia. He can be contacted by email to firstname.lastname@example.org.