4 Explanations why Financial Literacy Is essential For Young Singaporeans

Despite spending at least ten years in Primary and School, followed by tertiary education, most Singaporeans are not taught financial literacy formally, even if they major running a business or Finance.

This implies that Singaporeans can graduate from university and go into the working world without getting a basic knowledge of important topics insurance, investing, retirement planning and tools like credit cards. Those people who are more fortunate would receive some financial literacy education through our parents.

Today, the personal finance space is evolving faster than ever. Technology has made new product categories possible, such as robo-advisors, cryptocurrencies and peer-to-peer lending. Government policies are also constantly revised and introduced, each with their own implications on our financial decisions. Thus, it is important that all Singaporeans are equipped to know the ever-increasing financial decisions we must make.

In November 2021, the nation's financial literacy programme MoneySense announced that a compulsory financial education curriculum will be rolled out to any or all polytechnic and Institute of Technical Education (ITE) for incoming Year 1 students from 2021 onwards. This is welcome move that provides more young Singaporeans a good foundation for his or her lifelong journey of learning and cultivating good personal finance habits.

Here are four reasons why Singaporeans shouldn't neglect developing financial literacy.

# 1 Prevent Yourself From Engaging in Avoidable Financial Problems

As the old saying goes, prevention is better than cure. When we understand basic concepts like debts, interest, and risk, then we can make wise decisions to avoid the pitfalls that cause financial problems, along with the vicious circle that follows.

No matter how hard we work and just how much we earn, when we don't have the basic knowledge to handle our money, we are able to still find themselves in bad financial straits. And once we're in bankruptcy, things become more difficult for us.

For example, if you borrow beyond your means and aren't capable of making your repayments, your credit rating are affected. This affects what you can do to gain access to credit, for example have a mortgage loan at a reasonable rate, if at all. Should this happen, your ideal timeline for your life milestones may be affected.

In more serious cases when you need to declare bankruptcy, you may be depriving yourself of job opportunities or serving around the boards of companies or organisations, even though you possess the necessary qualifications and professional experience.

These are really the examples where poor personal finance decisions can cause you to suffer unnecessarily, even if you may be successful inside your professional career.

# 2 Compound Your Returns Over A Longer Period Of Time

Compound interest favours those who start early. By comprehending the concept of compound interest, young Singaporeans can get started early and take advantage of a longer period horizon to allow compound interest to operate wonders.

To illustrate, a Singaporean who invests just $500 per month in the age if 20 and still does so until age 65 will have more than $1 million dollars, assuming a 5% annualised return. Someone else who the same but started just 10 years later at age 30 can get slightly over $569,000. As you can tell, the 10-year additional time horizon led to more than $431,000 improvement in investment returns.

Individuals who don't wish to purchase the stock exchange can continue to take advantage of compound interest on their CPF monies. One common technique is to top-up your CPF Special Account (SA) with cash using the CPF voluntary contribution scheme. This will earn you rates of interest of up to 5% per year, such as the additional 1% interest for that first $60,000 in your CPF account. This rate of interest is virtually risk-free as it is guaranteed through the Singapore government.

# 3 Develop Good Budgeting Skills And steer clear of Unexpected Expenses

Money is a finite resource, and budgeting is the process of allocating your spending such that it reflects your priorities and requires. A comprehensive budgeting plan includes considering how much savings you need to put aside for brief and long-term financial targets, for example an urgent situation savings, buying a property, and retirement.

Poor budgeting may cause you to definitely save money than what you can afford, leaving you with little if any savings left for unexpected expenses. People who live month-to-month may have a cashflow issue when they get given annual bills for example annual insurance costs, yearly road tax renewals, or any other ad-hoc expenditure like broken appliances.

With a proper budgeting plan, you are able to spot overspending much earlier and can adjust by reducing your expenses accordingly.

Cutting expenses can be challenging, particularly when all your monthly bills seem necessary. However, you can often detect discretionary expenses if you track your everyday spending based on your individual needs and wants.

# 4 Impart The Value Of Money And Financial Concepts For your Children

Instead of relying on schools to teach your children about money matters, having financial literacy enables you to impart these good values and habits to your children at a young age.

As Singapore is transiting towards a cashless society, the next generation of kids will probably have a different knowledge of the value of money. This will make it much more essential for parents themselves to be abreast and current in their financial knowledge.

Start Early, Begin right now

It isn't too late to improve your knowledge on financial matters. There are plenty of online resources available, so you begin to build up your knowledge and also have informed conversations together with your peers and trusted financial adviser.

It doesn't even have to take a lot of time. You can start by spending a few minutes each day to teach yourself and you'll be on course towards improving your financial literacy.

The sooner you begin, the greater.