Your lack of financial knowledge is a risk

I recently went to get my car serviced. 

The mechanic told me I needed to replace my brake pads as they were less than 3mm thick.

I said yes, but I had no idea if he was telling the truth. He could have been ripping me off and I would be none the wiser.

Luckily, because I was at a reputable workshop, the advice was accurate. And you should in fact replace your brake pads at 3mm.

Financial knowledge is like car knowledge. If we don’t have it, we won’t be able to accurately respond to situations that need our judgement and decision-making.

But only 40% of Singaporeans are financially literate. 

Financial literacy matters

Financially literate people are more likely to:

1. invest in the stock market, 
2. accumulate retirement wealth, 
3. better manage their wealth, and 
4. have higher financial well-being.

Those who are financially literate are 3x as likely to be invested as someone who is not financially literate.

For older adults in Singapore (aged 50-70), higher financial literacy was associated with:

1. Higher stock market participation
2. More timely repayment of credit-card debt
3. Following appropriate age-based portfolio allocations (as proxied by the ratio of risky:less risky assets)

On average, older Singaporeans were able to answer 2 out of 3 Fin Lit questions correctly.

What predicts these behaviours? On average,

1. More financially literate,
2. Better educated,
3. Healthier,
4. Wealthier, and 
5. Higher-income

Respondents were more likely to display these 3 financial behaviours.

The effects of financial literacy

The literature supports the conclusion that financial knowledge does drive more 

1. saving, 
2. better retirement planning, 
3. better investment outcomes, and 
4. more informed decisions about retirement payouts.

The problem is that financial literacy does not come easily. It’s like trying to become fit. People pay for a personal trainer not because pushups are hard, but doing pushups is hard. In the same way, time, effort, and money must be expended towards acquiring financial literacy. 

What do I do? I’m not financially literate!

Luckily, we have several “hacks” to help with your finances. You don’t need to be an expert to manage your money well. With a simple 10 minute setup, you will be able to manage your money like an expert.

To begin, read the guides on saving and investing. 

I also have a financial health checklist for you to diagnose any health issues with your finances. 

With these steps in place, you have nothing to fear and everything to gain.

Best of luck, dear reader!