Why you need financial literacy – A real-life example

Financial literacy is a growing subject worldwide due to its pivotal role in building wealth. Wealth-building is not just about middle and high-income earners setting themselves up for generational riches. But it is also a panacea for families and population groups that have been previously sidelined and faced endless poverty. Such groups include previous colonies, minority groups and races, women, and children.

This article explains a simple sequence of how a previously sidelined individual can turn their life around. We will take it right to a point where they are old and have grandchildren or when they have passed on.

The First Stage: How Does Financial Literacy Work?

To explain the beginning of this journey, we look at an individual. She could be a single mom, working a 9-5 job and earning a basic salary. Her income is not enough to cover her rentals, insurance, and child support. At such a rate, she must know that it would be hard to take her child through tertiary education and eventually have someone working and earning multiple times her current wage.

Learning financial literacy is pivotal in such cases. But it begins with her identifying a looming problem of recycling poverty in her house. Therefore, something must give. She must learn how to work around her current income and leverage it to start building wealth for her family.

Given the above, wealth-building is a long journey. There needs to be a plan for this family to follow. And it could look like this:

  • Mom works a 9-5 job and barely has money to save
  • She is worried about her child’s future and wants to know how to protect her using her current income and opportunities
  • To learn how to, she learns financial literacy
  • She uses it to start using tools to save money, invest, or create a small business

What Are The Important Financial Tools To Build Wealth?

We mentioned that the mother in question learns financial literacy and starts using tools to get themselves out of this economic quagmire. Suppose you are wondering what they are. These tools are saving, investing, debt, and understanding taxes. You read more about this in our post about the principles of financial literacy.

These tools or principles of financial literacy protect the mother in question on various fronts. They will give her the means to start investing using her meager salary. They will help her get the proper insurance to protect her growing net worth and protect herself from going into debt during expensive medical treatments.

Therefore, the first stage of using financial literacy is to build basic foundations for growing your money instead of spending it all.

The other part of it is to build foundations for keeping it safe so that when accidents strike or when economies turn ugly, your saved or invested money is not wiped off.

The Second Stage: Transferring Financial Literacy to Your Children

After our mom in question has had savings, investments, or a small business. She must know that she is not yet safe. By now, she is probably getting older, so she will need her child to come in and continue growing the family business – or at least have enough knowledge to start her journey using the money already created for them.

But if the child is not financially savvy, she can only run the business to the ground. Or she cannot take control of her journey, continuing to build wealth from where her parent left. Therefore, the key to the next stage is to teach the child financial literacy and let her start earning while working with the mom.

She should be taught to save some of her money for her education. While doing this, she must know that paying for her education by debt (as many students in developed countries) is a trap.

When she completes her education debt-free, she has the upper hand and can quickly build on her mom’s foundation to further the family’s wealth. When she has her kids, your family will already be high net worth and comprise many people who know how to grow and manage wealth.

All the above is an excellent story of growth from zero to millions. What makes it even great is how the journey was started by a mom who earned a meager salary. The difference is that she learned financial literacy and made sure that her daughter learned the same.

Leave a Reply

Your email address will not be published.