Lack of financial education as a barrier to financial planning

In my earlier posts, I have tried to explain some of the reasons why some people don't have financial plan. Today, we are going to look at another reason for not having financial plan - lack of financial education.   

     Although having money is considered the most important task, having financial education cannot be neglected. Many people think they can do without having a financial plan, this is an illusion because money is very volatile. Even with a plan, we can make a mistake, imagine not having one. Financial education is very important to financial planning.

It is unbelievable that something of such great importance is not taught in any level of formal education. We are taught many different subjects in schools except the one which deals with how to manage the result of our sweat or hard labor. Is it not ironical to hear that? We go to school to have knowledge and, consequently, use the knowledge to make money. But, after obtaining the knowledge and money, we don't know how to use the money wisely.

“Everything is taught in school except how to manage the result of our sweat”

How can one study with the objective of making money, and after obtaining knowledge, won’t have the right instrument to manage the money derived from the study. Personal finance is so important that it is supposed to be taught right from primary education level. The reason for early engagement is that understanding the importance of managing one’s personal finances from childhood turns the child into a future financially responsible adult. Most of the financial problems people have today have their roots from lack of financial education. 

     If educated people did not have financial education, imagine the uneducated. Financial issues are generally left to be solved by those in the financial market. However, these professionals study corporate finance. Some of these professionals are themselves in a mess when it comes to managing their personal finance. The reasons for the mess are two-fold. Firstly, corporate finance professionals deal with finance and investment in a highly standardized format while personal finance deals with day-to-day decision about what to buy or what not to buy. The problems arise in a disorganized way and there is no standardized way or formula to solve personal finance problems. Secondly, corporations have reserve funds which give them protection while most individuals live from paycheck to paycheck.

Personal finance or financial planning for individuals should focus its attention to the problems and challenges faced by the majority of the population. Examples of these problems or dilemma are:

(a) what should a person do in a situation of rising food costs? Does he or she have to buy cheaper brands, buy alternative products, or look for a cheaper grocery store?

(b) How should one react in the face of increasing house rent? Do you move to a cheaper house in the same neighborhood or move to a cheaper neighborhood? Do you go back and live with your parents or do whatever it takes to earn more?

(c ) what do you do if the school of your children increases the school fees while you are on the same salary? Will you transfer your children to public school, send them to a cheaper school, or continue with the same school and buy a used car or move to a cheaper house?

      (d) what would you do if your child was born when you were unemployed

       and live on a rented house? Do you take any job you see or run to your in-

       law to help you?

(e) how would you proceed if your grown-up children could not find work after college?

(f) what do you do if your son and his wife keep on requesting for money from you as a result of their low salary? Do you turn your back against them or do you help them?

(g) what do you do if you find out that your grown-up child does not want to work? Would you send him out of your house?

At first sight, the above highlighted points may seem the issues related to counseling rather than financial. However, all has financial implications which affect one’s personal finances and, consequently, your financial planning. The essence of financial education is to teach and prepare an individual in making the best decision when exposed to the common day-to-day financial challenges of life. Financial education does not eliminate the problems, but provides one with the right tools to make the best decision.   

Personal finance mainly involves administrating one’s income against expenses. For a salaried worker, the income is basically the salary. Remember the example I gave in my post about the effect of people around you. Some of these workers give financial advise to others, but cannot manage their personal finances adequately. 

     The day-to-day expenses people struggle with are mortgage payment, car lease, house rent, high tech products, school fees, groceries, apparel, entertainment, and personal maintenance costs. While salary is generally fixed if one is lucky to have one, cost of living is always changing because of inflation, law of demand and supply, market trends, effect of international politics, etc. The scenarios which affect personal finance and spending are complex that only people with good understanding of them can be saved. Those who do not understand the above mentioned variables will fall prey to others easily. A person without financial education does not have the necessary tools, and this poses a barrier to financial planning. Lack of financial education affects majority of the world population.

     Although formal education does not provide financial education, you can get it through specialized training companies. It is very important you go for it. It makes a lot of difference in the life of a person. Think about this!