In a world of many competing priorities, financial literacy can be described as the hunger to learn and effectively apply basic financial planning skills.
This entails personal finance management, budgeting, investing, and planning for retirement.
Although this sounds simple, financial literacy levels among Kenyans are alarmingly low. A 2021 Global Financial Literacy Survey found that financial literacy levels were low in Africa with Kenya recording 38 percent against 40 percent in Tanzania, and 42 percent in South Africa.
Cultivating financial literacy is the foundational step towards establishing a positive relationship with money.
Gaining financial literacy begins with a personal resolve to learn what it takes to be a successful investor.
Individuals who are willing to build their literacy levels should read personal finance books, talk to financial advisors, listen to podcasts, or subscribe to financial newsletters and magazines.
These avenues give basic exposure on how to manage money, identify sound investment channels to grow income and attain financial goals.
Becoming a successful investor will require an individual to evaluate their risk appetite and tolerance. Risk tolerance is the degree of risk that an investor is willing to take up given the volatility in a given investment.
This understanding helps an investor to identify investment opportunities that match their investment goals and comfort levels.
Unpacking both short-term and long-term financial goals is also key in defining the investment vehicle an individual will deploy to attain the desired result.
An investment goal can range from saving for retirement, business expansion, education, or even a holiday.
For instance, a unit trust is a popular investment fund that pools money from different investors into one fund. The fund is then invested in bonds or shares of businesses on the stock market.
Unit trust reduces risk and diversifies investment by enabling individuals to spread their money across different investment portfolios.
An income drawdown fund is another investment vehicle that allows retirees to access regular income while allowing their retirement fund to generate investment income.
The amount invested in this plan keeps growing even as an individual continues to access income from the fund. This investment plan is suitable for individuals who would like to ensure they have an income at retirement.
Lastly, an education investment plan is a suitable tool for individuals whose goal is to save for their children’s education.
An education plan provides a structure to invest in systematic instalments towards a child’s higher education. The funds then gain interest and help the contributor attain their financial goals.
It is advisable that an investor puts money into what they understand. This will offer comfort and predictability during the investment journey.
