In theory, we were taught that getting richer is simple; to have more, you would simply need to spend less. But in reality, it goes far beyond that. A large number of people are not equipped with the basic financial education which teaches us about the importance of saving and how it can lead to financial freedom.
It is very likely that the lack of financial inclusion and literacy is synonymous to the underwhelming number of banked persons. According to a report by the United Nations, more than half of the worldâ€™s working adults are excluded from financial services. This is most acute among low-income populations in emerging and developing economies, where approximately 80 per cent of poor people are excluded. But our focus would remain on two things: savings and investments.
Itâ€™s no secret that the prevailing consumer culture i.e. the media and advertising sector, supported by peer pressure, has an enormous influence oÂ¬n how people, particularly young people â€“ spend money. This is where advocacy and financial education play a significant role in changing the norm.
Financial literacy plays a crucial role in breaking the cycle of economic poverty. It empowers young people with practical skills that prepare them for the future. A lot of financial service providers are already keying into this trend by coming up with ways that encourage a healthier investing culture among youth. The reality is a need, particularly young people need to understand the purpose of money as a medium of exchange, a form of financial security etc and deliberately plan towards effectively using it.
To illustrate, if you want to buy a car that costs N1million yet you earn N150,000 every month, this may seem like an impossible task. But if you invested N50,000 each month in a financial product giving you on average, anything above 15 per cent returns, in less than two years you would be able to afford this car. You would be able to achieve this without having to drastically change your lifestyle. This idea of having your money work for you is known as making passive income and is something we all should strive to do more of.
Furthermore, we need to encourage young people to budget their expenditure such that they are spending less than they earn. This would help navigate them towards the path of financial stability and taking control of their financial affairs.
Solutions to Financial Freedom
For young people who want to secure their financial future and live a life of financial freedom now, and in the future, a habit of planned and deliberate spending through saving and investing is critical and strongly recommended. One of the common misconceptions is that you need large sums of money to begin investing or that only rich people invest. This is far from the truth. Starting a savings plan early, into a defined investment portfolio can lead to financial empowerment and freedom. In our environment, the common practice will be to place oneâ€™s savings in a savings account. Well, this can give you some returns on your capital. However, there are other relatively safe higher yielding options which could be considered.
At Standard Chartered Bank, we adopt a disciplined approach to savings and investments. For example, our Retail Savings Plan (RSP) encourages you to continually set aside a fixed amount of money into a diversified pool of investments which consists of stocks, bonds, commodities and treasury products. Historically, it has been shown that an investment portfolio consisting of stocks and bonds would provide a higher return over an extended period of time than bank deposits. This is a better way to make your money work for you, while you get closer towards achieving your financial goals.
Regular investing is one of the best strategies for long term investing. When you invest at a gradual pace, you are less likely to commit large amounts of money in a single investment at the wrong time. More so, it allows you to contribute what you can afford, making it a flexible, yet effective way to build your portfolio. The benefits of regular investing could really add up over the course of a lifetime, especially with the effect of compounding.
With all these in mind, we know that when we start saving and investing early, we will become affluent enough to be financially free at a faster rate.
In conclusion, empowering young people to imbibe the savings culture requires that they must be taught financial literacy. The next step is to encourage them to follow a disciplined investment approach. With the right strategies and resources, they will be able to contribute greatly to the country’s economic growth not just through entrepreneurial and professional activities but also through their investments in the financial market.
Simpa Adaba is the Head, Wealth Management, Standard Chartered Bank Nigeria Limited