What is Financial Education in 2022?
1. Introduction to Financial Education
Financial education is a kind of education that is taught and comes to be recognized as having a value in the education of students. The goal of financial education is to teach people how to manage their money, in light of their personal needs, goals, and values.
The first thing you need to know about financial education is that it does not come from textbooks or other books. Financial education comes from personal experiences and decisions. It comes from experience; from doing things; from being around people who have been successful with their money; from talking to people you respect; from reading books and articles; from listening to podcasts on the topic; from making YouTube videos (and anything else).
2. The Importance of Financial Education
Financial education is a very broad topic, encompassing everything from the basics of accounting to more specialized topics such as financial planning, income taxes, and retirement. This post will focus on the latter topic.
Financial education is about learning how to get the most out of your money and your life. One way you can do this is through your own financial education. Here are some tips for starting:
1. Be honest with yourself about what you’re comfortable with (think about what you know now and what you do not know).
2. Start small – figure out where you stand and then start there (e.g., if you are just beginning college, maybe start there). If this isn’t possible then figure out where you want to go (e.g., a professional career). The point is to get started and find a good path to follow; the idea is not to get somewhere but to get there in a reasonable amount of time.
3. Do not spend all your time trying to collect information – too often we talk about finance without spending enough time doing things related to it (e.g., practicing budgeting or investing) – so it’s important to start spending now, as soon as possible after getting started in finance! Having done so, then spend some more time reflecting on what you’ve learned (and why) so that it all becomes an integral part of who you are now – i.e., instead of just another tool in your toolbox, finance becomes part of who you are now!
4. Take advantage of the web for information about finance and other areas related to it; e-mail accounts like Mint or Personal Capital for checking account balances; join forums on Facebook or Twitter for discussions about finances and other areas related to them; participate in online quizzes; do online or telephone research into places that have been successful in educating people along these lines (i e., reading “The Millionaire Next Door” by Thomas Jaster); watch documentaries like “Behind the Money” or “The Big Short” – they work best if they appeal primarily to people who are already familiar with finance (and they are also much easier than reading books!). Remember that there is no right way or wrong way – just find something that works for you on those terms!
5. Don’t be afraid that asking others will make teaching difficult – ask questions but don’t be afraid that they will think less of you if they answer them poorly – just let them answer their
3. How to Become Financially Educated
In the last few years, there has been a growing interest in financial education. There were two main motivations for this:
• The first is that by understanding how your money works, you will be able to assess how well the money is working for you.
• The second is that understanding how your money works will help you become more financially literate.
Both of these are valid reasons, but an important distinction needs to be made: financial literacy should not just focus on saving for retirement. It should also focus on things like planning for emergencies and spending wisely. And it is worth mentioning that there are other things a person can do with their wealth besides saving it, such as helping people who need it and investing in entrepreneurship endeavors.
Luckily, many people have done a lot of work to help make financial education more accessible. Take a look at this post on the personal finance blog Financial Samurai (which gets mentioned frequently), which features interviews with Mike Maples (the founder of Simple Dollar) and Dave Ramsey (the author of The Total Money Makeover). These guys did a lot of work to make financial education more accessible, so I am hoping they have had some impact in terms of popularizing the topic.
I would love to hear from other people who have contributed in any way towards making financial education widespread; what strategies worked or didn’t work, what tactics helped and which ones didn’t? Also, if you feel like writing about it here or elsewhere please do so — both open up much-needed discussion and give us all insight into what works for us!
4. What the Future Holds for Financial Education
Financial education is a term thrown around a lot these days, and like most terms, it is often ill-defined. I’ve been working with a group of people who create financial education resources and are currently in the process of publishing an ebook on the topic (which will be available later this month).
The term is used to describe a wide range of courses that teach people how to manage their money. From personal finance basics and real estate investing to investing in stocks, bonds, precious metals, and cryptocurrencies. Many of these courses are offered online or on-site by organizations, such as the S&P 500 ETFs (ETFs are funds that track the performance of index funds) or individual brokers, but there are also plenty of them available for purchase from print-on-demand startups such as Fidelity Investments.
The first key question to ask when considering financial education is: where do I need it? And those who have had experience with financial education would probably say that the answer is everywhere: everyone needs financial education. So many people are involved with managing their own money, they can’t possibly cover all their bases — especially if they want to break into direct sales or self-employment (or any other business). However, some people do not feel comfortable talking about money or business at all. They may live in an area where they can grow their own food or make their own clothes, but they’re not equipped to handle debt on multiple credit cards (or pay their bills) without some help from a mainstream financial institution.
I think this definition misses out on some key things:
• “Financial Education ” does not just mean talking about money (though it does), but about managing everything related to your finances (which includes your personal finances as well as your business finances), including planning for retirement and saving for future expenses (as well as understanding what credit cards you should use)
• “Financial Education ” does not just mean learning how to analyze information from data sources — though this too is at least part of it — but also learning how to put together graphs showing relationships between numbers and information so that you can see what influences these numbers; so that you can understand the concepts behind investment returns and why they change over time; so that you can see the connection between interest rates and asset prices; so that you can understand how inflation affects your purchasing power over time; so that you can understand what happens when interest rates go up
5. Learning About Finance and Financial Literacy
Financial education is one of the most important things a startup can do. Even if you are not a startup, it is an essential thing to do in order to attract investors, employees, and customers. Some people will tell you that you don’t need financial education, that you can just hire your way into financial literacy.
I disagree. Financial education is an integral part of being successful in business and there are many different forms of financial education that can help you grow and scale your company. There are many ways to teach financial literacy, but the best place to start is with the basics:
• Understanding what you own (and how much of it)
• What your income-generating skills are, and how much revenue they produce for you (and how much revenue they produce for others)
• How money works and where it goes
• How money gets from one hand and into another
Obviously, these concepts aren’t going to be taught in a high school classroom (or even a college class) but they can be taught easily with the right tools and enough time. I would recommend starting these concepts early because they will not be taught again until someone teaches them again — when somebody tells you things like “you don’t own anything” or “money doesn’t work like this” or “money doesn’t flow from one hand into another like that.” If we set out to teach people about finance early on, then we will already be teaching them about finance. I would wager — as did Stiglitz — that most people who have trouble understanding finance have difficulty understanding economics too; so at least we should start there if we want them to understand each other better over time.
6. Calculating Your Net Worth
This is a question asked in many different contexts, and it’s important to understand its meaning. The goal of financial education is to provide you with the knowledge and tools you need to understand your financial position so that you can make better decisions, protect your wealth, and improve your overall financial health. This includes understanding the key concepts of net worth and income.
Financial education can be broken down into two different types: (1) understanding what the numbers mean, and (2) owning money or assets. Understanding what the numbers mean is not easy but it’s important. If you don’t understand what the numbers mean, how will you know whether or not you should invest? And if you don’t own money or assets, how will you know whether to invest or not?
Understanding what numbers mean means knowing your net worth — an asset value that is a multiple of your liabilities! This means understanding the balance sheet (assets minus liabilities). Once you have an accurate picture of how much money you have invested in stocks, bonds, and mutual funds — when exactly did this happen? How much did this investment earn? What is your average annual return on this investment? What are your total lifetime expenses (debt and interest)? Can I afford my monthly payments at these levels? Will I outlive my retirement savings?
This information will help guide decisions around saving for retirement; investments; lifestyle; saving for emergencies; estate planning; insurance plans; taxes; tax-loss harvesting strategies. Also: understanding what assets are in which category helps a lot with planning for taxes (stating which tax bracket holdings are subject to) as well as choosing which retirement account options to use for investing. You might also want to know about capital gains versus ordinary income tax rules!
Owning money or assets means having some form of cash flow from your investments (a mixture of dividends, interest payments, etc.) – it could be cash in a bank account that comes from stocks, bonds, or mutual funds (which could be held passively), it could be cash that comes from working on a job each day — it all depends on how much time you spend working each day — and generally speaking, all this cash flow needs to come in at least once per year. The idea here is that if one pays taxes annually then one “owns” their cash flow every year too!
But having some sort of cash flow from investments doesn’t only tell us how we should
7. Budgeting Your Money
This is the first post in a series of posts where I will be outlining the five things I already do when it comes to running my company. The series will focus on how I plan for, and budget for, a lot of things that don’t always fit into the typical financial education curriculum.
This post covers what financial education is and why we need it. It also covers how you can use it as an investment tool (and why).
I think that one of the most fundamental mistakes that people make when they start their business is thinking they are starting a business with no money at all. It’s not like this. A lot of people don’t realize that in order to really launch a company, you have to be able to fund it. And yes, there are expenses.
The great thing about starting a company is that (assuming you have enough money), you can actually lower your expenses by taking advantage of economies of scale and providing services more efficiently and effectively than if you were just doing it yourself. But without putting up money to fund your startup from day one, you are at risk of running out of money very quickly if you don’t get some revenue or a customer before then. So here are the five things I do when I run my company:
1) Fund my own startup
I have made this mistake many times before with other businesses (and yes, many companies have lost money before they even launched because they didn’t fund their startups), but now I know better than ever to always start fundraising as early as possible so that my startup doesn’t run out of money before launch! There are many ways to do this — from bank loans or cash advances (but if your bank doesn’t offer this option (like most banks in Canada) then finance from family/friends probably isn’t possible either). My favorite way is through AngelList or through friends/colleagues who may not know about me yet but who want me to succeed because they know how much I love startups! AngelList is free and easy to use ($10 for 2 investors) and allows me to participate in dozens of deals every day; while simultaneously meeting lots of new potential investors myself each week ($2 million+ annual advance!).
2) Create an “innovation lab” (or similar) where I can keep looking at new ideas while continuing with my existing business
A startup without an innovation lab is like driving
8. Investing for the Future
Financial education refers to the ability to understand financial concepts, and the ability to gain confidence in your decision-making. Most people have basic financial knowledge, but many don’t have the ability to apply it.
Having said that, it can be hard to teach people ‘how not to lose money and even harder (in terms of teaching ideas) to explain “what is money” at all. If you want people who will take your product seriously (which they will if they like it) while they are building their careers, you need financial education.
While there are many good books on investing and financial planning, I’ve found that many of them are not written with a beginner in mind: most courses on investing/financial planning only cover relatively broad topics like “when does a stock go down?” or “how should I invest in stocks?” If you want someone more specific, you need a course that teaches these things from an investment perspective.
Financial education is a broad term that covers a lot of ground. This is why I started writing this post. It is also why there are so many different definitions of what it is.
I will argue that financial education is the process of understanding your finances, the fundamentals of investing and savings, debt, and credit, and how these applications relate to each other (or not). It’s the process of doing your homework; learning about different sources of money (and where to get them), different kinds of debt, different ways to manage it when you do have it, and how to avoid getting into trouble with it.
This definition doesn’t say exactly what you need to know, but at the same time, it does not require you to memorize a vast body of information. It doesn’t require complex formulas or complicated math — unless you want them! A common way people have learned about these things is through books or lectures. If you already have a good idea about what financial education entails, then great: if not, then here are some suggestions on finding financial education somewhere:
• Info junkies: There are loads of financial services sites out there (like Quicken or Moneywise) that can provide information on different kinds of investments and the like in specific areas (real estate etc.). The interesting thing here is that almost all financial services companies provide some kind of free advice which can be very useful for beginners (and even experienced investors). If you sign up for one, make sure they tell you where their free resources come from and how much they charge for them!
• Courses: While a degree in finance might be helpful for getting into investment as an adult (which most people are), if not just because it will give them access to useful information at a deep discount compared with reading texts, looking stuff up online on Google Scholar, etc., there are tons more affordable options out there for those who haven’t had formal finance training yet: various language courses in finance such as CFA Institute’s CFA program, or courses in real estate or accounting.
• Books: If money isn’t getting any better than working multiple jobs… then by all means buy yourself a book on finance! Good reads include “The Intelligent Investor” by Benjamin Graham, “The Little Book on Investing” by David Swensen, “Money & Investing” by Warren Buffett, “The Intelligent Investor 2nd Edition” by Benjamin Graham.