The basics of financial education
Financial education is the area of economic education focused on helping us manage our money in the best, most efficient way possible. The growth of the personal and collective financial culture of a Country is fundamental to implement effective financial policies and to improve the quality of life of each individual. With this article we would like to try to increase your basic knowledge about the management of your financial resources in order not to remain unprepared in case of hypothetical unforeseen events and thus be able to make conscious decisions in financial matters. First, we need to ask ourselves:
What is financial education?
To find an official definition of financial education, international organizations can help us. It is precisely the OECD (Organization for Economic Cooperation and Development) that gives us an important definition of what financial education really is:
“Financial education the process by which financial consumers/investors improve their understanding of financial products, concepts and risks and, through information, instruction and/or objective advice, develop the skills and confidence to become more aware of financial risks and opportunities, to make informed choices, to know where to go for help, and to take other effective actions to improve their financial well-being”.
Through financial education, therefore, we become more aware of how to manage our assets and we do so precisely through knowledge of what the following are:
- financial markets;
- financial operators;
- financial instruments, products, investment services;
- stocks, bonds, mutual funds, derivatives;
- cryptocurrencies and their markets;
- cash flow.
A knowledge of these instruments, operators, services, and markets provides a basis for understanding, or rather perceiving, financial risks from the very beginning. A basis for recognizing possible fraudulent schemes and choosing the most correct investment and/or savings opportunities.
After you have acquired these concepts you can operate independently and take action. For example, you can:
Define goals: creating your financial portfolio
When managing your money, as in other areas of life, it is important to set yourself financial and asset goals and, above all, to try to stick to them. It is necessary to design a strategy that eliminates actions that are potentially harmful to your finances, actions that harm your goals.
In order to define specific goals, they must coincide with your lifestyle, your attitudes, and your passions. In this way you will be able to understand from the beginning which expenses can be considered necessary or, on the contrary, superfluous, useless. You will be able to answer questions such as:
- Do I need a credit card?
- Which bank account is best for my needs?
- Is it better to live renting or get a mortgage?
- How can I create a retirement fund?
- Would it be helpful to structure a capital accumulation plan?
- Can I dedicate a portion of my investments to cryptocurrencies?
Once the goals have been defined, you can then concretely divide up your portfolio and make your theoretical goals become reality. You will then define:
- Necessary expenses;
- Incidental expenses;
- the secondary activities: the percentage of your portfolio to dedicate to investments and also, of course, for leisure.
So, how to improve your financial knowledge?
As we have seen, knowing financial concepts and instruments allows you to make informed decisions in every aspect of your financial “life”. There are books dedicated to finance, investments, cash flow, the world of cryptocurrencies, online and in-person courses with experts in the financial sector.
The importance of financial education
Knowing how to move within the continuous evolutions of the economic and financial world that surround our daily lives, allows us to live our lives in a truly active and conscious way. Thinking about money in accordance with the times is the most efficient way to achieve, step by step, the life you want to live, in harmony with yourself and with others.
Living a life aligned with your inner well-being, in harmony with your desires and your social existence, also passes through a correct knowledge of the actors, instruments, and products of the economic and financial world. Knowing the financial basics allows you to better plan your savings and investment strategies. It allows you to increase your economic availability and, consequently, improve the quality of your life. Insecurities, anxieties, uncertainties are overcome through knowledge and this happens in every sphere of our existence and the economic and financial one is no exception. In this area, Dashero will always try to ensure that you have the best possible understanding of the economic and financial dynamics necessary to take control of your life.