Why Financial Literacy is Critical for a Happy Life?

The pursuit of happiness is the single biggest pursuit that gets many of us out of bed in the morning. Yet, when it comes to speaking about finances, many of us tune out - some even believe that money is the root cause of all evil, and the idea is to focus on purpose and never be seen speaking of money, with purpose often now perceived as the higher morale ground.

I suppose this all or nothing mindset contributes to the below dismal stats.

According to the S&P Global FinLit Survey, worldwide, 'only 1-in-3 adults are financially literate.'

Given the advancement in access to financial services, ease of borrowing, and so on, this lack of knowledge is extremely concerning. While banks and financial institutions can try to do the right thing for you, and try to drive good outcomes, they only have a slice of your life's story and not the whole story. They may understand your bank account and spending patterns, but seldom understand you - your past experiences, your career choices, your family circumstances, your relationships, your fears, your dreams...your personal definition of happiness.

Therefore, the ultimate accountability for your financial future and happiness sits with you.

So In this article, we'll explore what is financial literacy, how it impacts your happiness, and what you must do about it.

What is Financial Literacy?

In simple terms, financial literacy is the basic understanding of important financial concepts. This includes terms such as personal finances, budgeting, saving, borrowing and investing.

Having some understanding of your finances gives you the ability to make informed choices when making day-to-day decisions.

For example, if you're trying to set up a business to fulfil your purpose, you may need some money. Yet, if you're lacking in financial literacy, you may struggle to determine the best way to get that money. Should you get a credit card, or take an overdraft? Or perhaps take a business loan? Should you contact your bank, or find an alternative bank? Should you get that loan now, or wait until there's a better time to do so?

On a personal front too, we regularly make several such decisions. For example, if you had a surplus $1000 sitting in your bank account, should you let it sit there for a rainy day, use it to pay a debt, or should you take advantage of the high interest savings account? Or perhaps try and invest?

How Financial Literacy Impacts Your Happiness?

Money worries can have a huge bearing on our happiness and our relationships too.

According to one CNN survey, 71% of Americans identify money as a significant cause of stress in their lives.

In the UK too, a study from St. James’s Place (SJP), highlights that money worries impact our sleep, work, relationships; and that 47% UK adults find that money worries affect their mental health.

While not all money worries can be resolved by literacy alone, lack of financial literacy makes us more susceptible to making poor choices despite all information presented to us.

What You Can Do About It?

For starters, keep this simple.

First, get a really good grasp on your incomings and outgoings so that you know you're in the black, a term often used to having more incomings than outgoings. For this, you must have a budget. These days, many banking apps offer 'pots' so you can set aside specific sums of money for categories; and some even allow you to categorise outgoings as you work through the month.

Over time, depending upon what part of the world you live in, you must develop a good understanding of the local tax structures, saving and investment schemes.

Also, if things are too easy, such as Buy Now Pay Later (BNPL) schemes, try and do your own study before signing up to such products. Personally, I'd love to see more products that encourage you to Save Now, Spend Later (SNSL), but alas those are yet to make a mark.

Over time, as you begin to grow your assets, think about ways to diversify your risk while growing your funds and resilience. Of course, at all times, you must be clear on what your goal is. For some, it may be to gain financial freedom, while others may be saving for their children's education, and so on.

While I can't cover all concept here, you can continue to invest in your financial literacy through various books, social media channels and so on.

Summary

Let's face it. Whether we're getting married, choosing a career, go travelling, buy a home, or deciding on starting a family, we make financial decisions all the time - and financial literacy, or lack of, can have a huge bearing on the quality of our life and relationships.

In today's day and age, knowledge is extremely democratised, and particularly for those of us with access to a digital device and the internet, there's no excuse for being financially illiterate.

As Warren Buffet put it, “Someone’s sitting in the shade today because someone planted a tree a long time ago.”

So get out there and plant your tree!

Drop me a line on [email protected] if you'd like a one-on-one session to think through your life goals, options and plans. Also, please share this with anyone who needs to read this. With 2-in-3 adults being financially illiterate, there's plenty more we need to do.

About Me

I’m a?senior leader in the financial services industry with over 25 years of corporate experience.

Through my very diverse and global career, I've held senior leadership roles in prestigious firms such as HSBC, Barclays, BSkyB and NatWest.

I’m also an accredited coach, a published author, global speaker, Udemy instructor, a marathon finisher, and a passionate investor.

Click here to contact me for speaking and coaching engagements.