Financial literacy — or the lack of it
The pandemic and the work from home situation has given a lot of room to get nostalgic about the past. Out of the oh-so-good and not-so-good memories, who can forget the piggy bank pocketed money and the ritual of breaking it when we thought — enough is enough! Coming to think of it, for all of us who were raised in typical Indian middle-class families, financial matters were never dinner table conversations. Graduating from school to college to work, creating wealth was a concept unheard of and was grossly misunderstood as earning a salary. As hard as it might sound, we somehow got stuck at our piggy banks.
The first encounter with the need for personal finance usually happens with the first Income Tax deduction. We panic, involve our parents and arrives our Messiah — that family friend consultant who’ll sell us policies/schemes he/himself or she/herself is neither interested in nor invested in. (Been there, done that. I feel you.) Another worst case scenario is -
Fixed Deposits. No prizes for guessing this one.
According to a survey conducted by the Global Financial Literacy Excellence Center, only 24% of the Indian adult population is financially literate. In comparison to other major emerging economies, the financial literacy rate of India is the lowest.
Every generation has a different approach towards finance. The previous generation looked at homes, vehicles, FDs and gold as investments. With rising inflation and unemployment rates, this generation’s interests need to diversify to different avenues. This blog post, is by no means, an exhaustive personal finance course. In fact, it’s a novice’s approach to wealth creation when one has the bandwidth for risk, instead of letting the money lie in a savings account or FD and let inflation eat it away.
The lockdown has given both beginners and finance experts the time and the need to come up with intelligent investment plans for early financial independence. My personal recommendations are Akshat Srivastava and Ankur Warikoo. Both of them started like any of us, in FDs and schemes they didn’t know about and lost money. They went on to do their MBAs from premium institutes and built their knowledge over the course of time. Be it a beginner or an expert, be it long-term investing or intraday trading, be it BitCoin or Ethereum, they got you covered. They also share the apps/platforms that they use, their personal investing journeys and goals, which are the icing on the cake. One can start their baby steps into investing right here. And what better place to start with than mutual funds? With the easiest bet being NIFTY50 and large cap index funds, they are a good start for a long term plan. One can eventually progress to blue chip stocks and bonds.
A properly diversified investment portfolio should include:
- Cash
- Stocks
- Bonds
- Exchange-traded funds
- Mutual funds
With that done away with, let’s talk about good debt and bad debt.
Good debt is the type of debt that may be considered an investment, such as a mortgage, student loans, or an auto loan. This debt is taken on to purchase something that will increase in value or contribute to your overall financial health.
Bad debt, on the other hand, is used for purchasing material things. This includes credit card debt and high-interest loans. While bad debt might make you happy, it doesn’t provide any type of return on your investment that puts you in a better financial position than you were before. A good debt might also turn into a bad debt if one borrows too much of money.
With the wealth of free resources that are available, one has to do their due diligence before putting in their money. High risk investments seem alluring due to the initial lack of kmowledge . Understand the risk involved. Start small but diversify and stay consistent. Compounding is the key to wealth generation. Instead of calling them adult conversations, making financial discussions normal will ease out the process. Looking back, we have better knowledge, resources and exposure about investing in comparison to our parents. The onus now lies on us to ease it out further for the next generation. With the rise of new-age digital investments like blockchain and cryptocurrencies, a one-stop shop that unifies different portfolios while also educating beginners right from scratch will be here to stay.
New age investors, let’s not give up. We got this!
