When it comes to money and chances, precarious financial literacy may hinder the future of those just starting out in life. Financial literacy is vital because it empowers us with the information and skills necessary for efficient money management, and it should be a process that starts from infancy and continues through maturity.

Importance of finance literacy

Overall, the importance of financial literacy stems from it affecting almost every element of a person’s life. Thus, even in families and marriages, many of the difficult moments individuals face are concentrated on money — everything in the society in which we live revolves around money. Because we live in a capitalist society, everyone should learn as much as possible about money management to secure their financial futures.

Furthermore, financial literacy enables young people to make intelligent financial choices. It teaches the information and skills necessary for good financial management, including budgeting, saving, borrowing and investing. Hence, young people are better positioned to meet their financial objectives, attain financial stability and reach goals such as saving for retirement, acquiring a house or spending less.

Exploring different types of income

It is important to understand that there are two primary sources of income: passive and active. Most individuals want to increase their passive income derived through automated internet trading, investments, affiliate marketing, etc. In contrast, active income consists of the individual’s employment plus any other businesses or services they provide.

Having multiple income streams will provide an income safety net so that it is possible to depend on other options if anything goes wrong and you lose one job or income stream. By establishing and cultivating various income streams, young people will have the opportunity to develop themselves without being restrained by eventual financial difficulties.

Saving v Investing

Investing and saving entail the accumulation of funds for future use, but their risk profiles are distinct. If the financial objective can be attained in less than five years, such as arranging a trip or purchasing a home, saving is typically seen as a wise strategy. The funds placed in a savings account are more liquid than those placed in investments.

Conversely, investing may assist anyone in achieving longer-term objectives, including retirement or a college fund. Patience is crucial when it comes to investing. The longer the money is invested, the greater its potential to grow and earn compound interest, which happens when investments’ profits are reinvested and produce further earnings.

In this pursuit, budgeting is essential since it enables individuals to manage their spending, monitor costs and save more money. By monitoring costs and sticking to a plan, a budget makes it simpler to pay bills on time, build an emergency fund and save for large purchases. Ultimately, proper budgeting places a person on a solid financial basis for both the short and long term.

Bottom line

Solid financial literacy enables people to develop healthy money habits from a young age, ensuring future financial security and preventing many errors that contribute to lifetime money problems. Without basic financial education, children and young people would struggle to successfully manage their money, and run the danger of financial ruin owing to risks such as excessive debt, poor credit and a lack of savings.

• Jamarco Sampson is a recent graduate from Saint Mary’s University, where he completed a Bachelor of Commerce degree with a focus in management