Financial Literacy is more than just Investing

The past year has been pretty crazy - Covid resulted in a large drawdown in March 2020, Bitcoin’s value suddenly skyrocketed, and currently, we have this thing with GameStop going on.

With all that has happened, there will definitely be winners who have reaped generous returns from their investments. And it is undoubtedly difficult not to feel a little bit of FOMO from not investing (or gambling) in the same instruments.

However, let’s not forget that financial literacy isn’t just about how much we were able to earn from our investments; It is not just about getting 20x, 30x returns from our bets.

Getting rich and staying rich are two different problems. There are plenty of stories about how lottery winners eventually going bankrupt. Similarly, if we let ourselves be driven by the impulse to earn huge returns without properly understanding the investment, it will surely lead to our downfall one day.

Aside from slowly learning how to invest rather than gamble, there are other aspects of financial literacy that we shouldn’t forget about.

Insurance

• Do I have sufficient coverage should something happen?

• Am I overpaying for my insurance?

Budgeting

• Do I have enough set aside in my rainy day fund?

• Are there any categories that I’m overspending on?

• Am I on track to meeting any financial goals?

Retirement

• Am I on track to retiring at the amount I am comfortable with?

• Can I reach FRS or ERS for my CPF LIFE?

Career Development

• What are the skills that are in demand in this current period?

• What are the various subsidies and initiatives I can leverage to learn these skills?

These are just some questions we can ask ourselves. They are by no means exhaustive. Fortunately, Seedly has a framework that we can use as a benchmark.

Over the past few weeks, I have heard stories from different people about how they knew someone who went into GameStop. The story that struck with me was one where the person poured in his inheritance money and lost USD50,000 during one of the dips. Imagine where that sum of money could have gone to instead.

While it is important to invest, it is also important to remember why and what we are investing for. What are your financial goals?

• Is it for your child’s education?

• Is it for your retirement?

The next time you see someone post about their extraordinary returns, ground yourself with your investment objective. Unless the sum of money is something you are okay with losing, stay the course with your current investment strategy.

Financial literacy is about how we can make rational, informed decisions with our financial resources. While investing is one aspect, it is not the only one.