Story: Franklin ASARE-DONKOH
The Executive Director for the Centre for Financial Literacy Education Africa, Mr. Peter Asare Nyarko has hinted that Financial Literacy is not a subject thought in Universities.
According to him, financial literacy is something that one has to be intentional and diligent about and apply in everyday life decisions.
Speaking on the topic “Improving Financial Literacy” on the GTV’s current affairs show “the Breakfast Show, with Thelma Tackie, Mr. Asare Nyarko explained that one can be a doctor, lawyer, teacher, journalist, and professor, but that individual does not have the essential principle to manage his personal finance.
“Interestingly financial literacy is not thought in school, so it is something that an individual has to be conscious about it when it comes to taking care of your financial resources”, he mentioned.
Below Are Fundamental Financial Knowledge And Principles That Wealth Builders Should Master.
“It is very important at this stage to list for discussion some basic principles of financial knowledge under the following subheadings, for wealth building and sustenance.
TIME- VALUE OF MONEY.
“Wealth builders must always be conscious of the time-value of money for successfully building wealth. The time value of money here not only refers to using time adequately but also to avoiding time wastage and recognising the value of time for taking advantage of available opportunities and managing the risks and returns in wealth building and sustenance. It also covers the attainment of a long-term forecast of returns that are expected from investments in the financial market, with a view to optimising expected returns that may be accruable to wealth builders. Time value of money refers to always weighing one’s cost vis-à-vis possible investment outcomes.
This basic knowledge is necessary for successful wealth building. The basic understanding of net present value, compounding of returns, and cost/ interest rate effects on wealth are covered here. However, successful wealth-builders only need some basic understanding of these skills. They do not need to go deep into their acquisition of financial knowledge in this area. They only need to be aware and understand their uses when utilised by their finance technocrats. Wealth builders’ basic knowledge in this area would assist them to make sound management decisions about the importance of time value of money for their successful wealth-building goals.”
RETURNS VERSUS RISKS
Another principle of finance that is important for successful wealth building is the element of higher returns expected from higher risks. A basic principle in financial management has it that the higher the risk, the higher the expected return. It explains why in the financial world, countries with higher risks have to pay higher interest rates on loans obtained from international financial agencies, institutions, and the World Bank. This principle of finance is also important for wealth builders for running their wealth-building businesses. Businesses that require higher risks must be compensated with higher returns, in order to ensure that such risks are adequately covered to give good net returns”.
INVESTMENT DIVERSIFICATION
“The third basic principle of finance for use by wealth builders is the need for diversification of investments towards reducing their risk exposures. The basic knowledge about this is for wealth builders to investigate and satisfy themselves with the different risks associated with each wealth-building opportunity that would arise from time to time. Such risks include systemic risk, operations risks, economic risk, liquidity risk, interest rate risk, marketing risk, and exchange rate risk. Successful wealth builders must have basic knowledge about these risk elements to which their wealth is exposed, closely and consistently manage them in building their investment and business portfolios, with the risks compensating each other towards optimising wealth builders’ returns.
In the process of building my wealth, I took advantage of this basic financial knowledge by ensuring that my investments in equity, with its high combination of interest rate and economic risks, were balanced by some investments in money market principal guaranteed investments while at the same time being aware that investment in property and land have very high liquidity and market risks. I always ensured that my economic risks were covered by investments in dollar-based instruments, especially with Nigeria’s very volatile exchange rate risk. This is a critical area of financial knowledge that wealth builders need to be adequately informed about, in order to better manage and sustain their wealth building”.
REPUTATION AND INTEGRITY
“A prevailing problem that greatly and adversely affects wealth builders in Nigeria is the generally poor level of trust, integrity, and reputation in Nigerians. A basic requirement for success in building and sustaining wealth is the existence of trust, reputation, and integrity in business and investment interactions and transactions. As a principle, wealth building and sustenance can only be built with reputation and integrity. To make wealth-building worthwhile and meaningful for living, we require these three ingredients.
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