Your Ultimate Guide To Financial Literacy: What It Is & How To Improve It

DEFINITION

Financial literacy is the ability to understand and efficiently use various financial skills including financial management, investing, and budgeting. Financially literate consumers not only manage their money with confidence, but also have a better chance of handling the inevitable ups and downs of their financial lives.

It is the foundation of your relationship with money, which enables you to create a lifelong journey of learning. It will help you understand how to prevent and manage financial issues as they arise. The earlier you start, the better off you will be.

On that note, here are the advantages of financial literacy.

UNDERSTAND HOW MUCH YOU SPEND & EARN

When cultivating financial literacy, establishing a budget can give you a clear understanding of your expenses and income. Once you have a budget in place, you will be able to track your spending and revisit your spending plan regularly. With the variety of budgeting methods such as 50/30/20 plan, you can choose one that suits you best.

PAY OFF & AVOID DEBTS

Searching for the lowest interest rates when comparing loan terms can help you save a substantial amount of money over time. If you already have debt, financial literacy can help you select the best methods to eliminate your debt. You can pay off your credit card balances each month, so you do not get trapped by the interest charges. You can look for a credible expert such as a credit counselor if necessary.

WORK TOWARDS FINANCIAL SECURITY

Saving for retirement will enable you to secure your future. As you become more financially literate, you will be able to examine how much you need to save to obtain your retirement plan. You will be able to carve your action plan too.

WAYS TO BOOST YOUR FINANCIAL LITERACY

1. SET A BUDGET

Track your earnings and expenses each month by using an Excel Spreadsheet, a ledger, or a budgeting application. Your budget should include your incomes (e.g., investments and paychecks), fixed expenses (e.g., rent and utilities), variable expenses (e.g., shopping and travel), and your savings.

2. PAY YOUR BILLS ON TIME

Stay on top of your monthly bills by making sure that payments arrive on time. Consider taking advantage of automatic payments or signing-up for payment reminders (i.e., by email, SMS, or phone call).

Image Credits: unsplash.com

3. BUILD YOUR SAVINGS

Building your savings will help you reach your financial goals. Decide how much you want to contribute each month and stick to it.

4. CHECK YOUR CREDIT SCORE

You can request your credit report from Singapore’s credit bureaus. Companies assess your creditworthiness by looking at the credit score. Having a good credit score has its perks such as helping you obtain the best interest rates on loans and credit cards.

5. MANAGE YOUR DEBTS

Utilize your budget to manage your debt. You can devise a plan to reduce your monthly spending and increase your monthly repayment. Develop a debt-reduction plan such as paying for the loan with the highest interest rate first. If your debt is excessive and overwhelming, you can contact lenders to re-negotiate repayment or find a debt-counselling program.

Sources: 1 & 2

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Endowus Singapore Retirement Report 2021: Almost 50% of Singaporeans have not started retirement planning

Singapore residents crossing the road

Do you know that though CPF members’ total balance has increased from roughly S$125 billion in 2006 to S$474 billion in March 2021, only 63.6% of active CPF members who turned 55 could set aside their Full Retirement Sum (FRS) or Basic Retirement Sum last year?

Hence, to better understand Singaporeans’ attitudes towards retirement, Endowus has worked with YouGov Singapore to develop the Endowus Singapore Retirement Report 2021. The survey took place in May this year with a sample size of 1099 adults, reflecting our tiny red dot’s adult profile population.

Here are its findings.

39% of Singaporeans are worried about retirement inadequacy

The survey revealed that about 1 in 3 Singaporeans are worried about retirement inadequacy. However, the results varied between the genders. Twice as many men than women confidently agreed that they hold sufficient money for retirement.

Almost 50% of people have not started planning for retirement

While 53% of Singaporeans are planning to use or are currently using CPF to fund their retirement, almost 50% of people have not started retirement planning. This is especially true for the younger age group under 35.

Lower-incomers are less likely to plan for their retirement with CPF
younger Singapore residents

Image Credits: The Jakarta Post

Another worrying factor is that those earning below S$3,000 are less likely to plan for their retirement with CPF when compared to those with incomes above S$6,000 per month. This thus also means that lower-incomers are not making full use of their CPF. It also lowers their chances of achieving the FRS for financial stability at retirement.

Only 25% are currently investing their CPF

The report also showed that close to 70% lack confidence in investing their own CPF monies. That is why only 25% are currently investing their CPF. However, most Singaporeans seek higher returns and ranked it as the most critical criteria for CPF investing.

30% are asking for tools on CPF investing knowledge

There seems to be a gap in using CPF around financial decisions; as such, a third of Singaporeans are requesting tools to help them understand the impact of their financial decisions around their CPF. Some are also appealing for resources to aid them in estimating retirement income from their CPF.

To that, Samuel Rhee, Chairman and Chief Investment Officer of Endowus, agrees. He said, “Considering these shifting time horizons and other uncertainties, more education may be needed to help Singaporeans make better use of their CPF, especially earlier in life, when savers have more time to take advantage of asset growth.”

What about you? Have you started retirement planning? Ponder over these things if you want to be on track to building your retirement fund. For the full Endowus Singapore Retirement Report 2021, please head to endowus.com/insights/singapore-retirement-report-2021.

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Here’s how single-income families can cope with financial anxieties

a woman facing financial anxiety

Every family out there is different, and we ought not to compare ourselves to others. But truth be told, single-income families can lead to a heightened amount of pressure on that sole breadwinner.

Carrie Casden, financial wellness coach and president of Summit Financial Management, said, “Quite often, feelings of fear and anxiety stem from… simply perceiving that we’re out of control of our circumstances, and these sentiments can be particularly prevalent when it comes to single-income families.”

Want to take better control of your mind and financials? Here’s how single-income families can cope with financial anxieties, according to the experts.

Reorder your priorities

Casden noted that families usually have quite a few financial goals they’re aiming for, and that’s okay. However, if there isn’t enough income to put a checkmark beside the various aims, one must learn how to make changes.

Reorder your priorities by keeping in view the items lowest on the list. You can always come back and reassess your financials every quarter of the year.

Be aware of your money views
Singapore money

Image Credits: internations.org

To review your financial anxieties, it’s essential that you’re aware of your views towards money. Here are some questions to ask yourself:

  • Are you cripplingly frugal or overzealous with spending?
  • Does a “spend too much” or “don’t make enough” mindset bother you?
  • Do you tend to avoid talking about money because they make you uneasy?

“There are different ways to reduce anxiety based on the actual issues at hand, which is why I work with clients to help them identify their specific money archetypes to understand the origin of their anxieties and behaviours around money,” said Casden.

Develop a spending plan and track your outputs

Ann James, an accredited financial counsellor and CEO of Financial Freedom Battle Buddies, recommends single-income families develop a spending plan. This will allow individuals to have a sense of control over their money and, in turn, reduce frustrations associated with the unknown.

When it comes to tracking outputs, some of us are experts with the excel sheet. But Dr Elizabeth Dunn, PhD, a happiness researcher, advises us to focus on how purchases make one feel.

“What purchases bring your family joy and which lead to feelings of regret or sadness? Maybe a long and expensive dinner out did not end up saving anyone time, and the regret over spending all of that money on one meal was not worth the spend. But your Hulu or Netflix subscription means the entire family can have a movie night together once a week, and that brings joy to the entire family,” she added.

If you’ve tried the above methods but can’t seem to get around the stress from worrying about money, ask for help.

“Seeking assistance from accredited financial counsellors, credit or housing counsellors, or financial therapists can help alleviate feelings of shame and ultimately reframe an individual’s thoughts and relationships with money,” advised James.

Do you know that the Singapore Counselling Centre offers Financial & Debt Counselling? Or you can also book a 1-to-1 Credit Counselling Session with Credit Counselling Singapore. Click through the links to find out more.

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How To Make Better Money Decisions

When it comes to handling your finances well, there is a plethora of information available online and in the nearby library. Educating ourselves and widening our financial literacy is the first step to making better financial decisions.

Often, there is no single path that will lead us to the “right” decision. Instead, we must walk the path using different strategies and methods to come up with the best financial decision. Start with these steps.

#1: EDUCATE YOURSELF

Gather as much information as possible to organize your options and action plan. Although you are inclined to make a gut-driven decision, educating yourself is an important first step. Research shows that gut feelings tend to be more accurate when they are made by experts. Thus, becoming an expert on a certain financial issue can make your intuition more reliable.

#2: INTERVIEW PEOPLE WITH SIMILAR CHOICES

Talking to people who have taken the paths that you are considering will help you see the bigger picture. Choose people who are willing to speak to you with all honesty. Study suggests that this approach can help you make more accurate predictions about your own reactions to potential future events. While no one’s experience will mirror yours exactly, you will be able to learn a lot from these people.

#3: ESTABLISH A LIST OF OUTCOMES

When making decisions, I make it a point to list the possible outcomes of each option. Writing down the outcomes can help you make better decisions. Write down a couple of ways your option can go wrong and highlight how you can potentially lose money. Then, write down the ways your option can go right. This option is a strong contender if you think that there is nothing that can go wrong.

#4: DISCUSS YOUR DECISION

Look for a person whom you trust and respect. Discuss your financial decision with that person. Discussing your decision with others will help you understand the situation at hand. Moreover, you will be able to get feedback from someone who does not have a vested interest or a personal involvement in this decision.

#5: CONSIDER BOTH THE PRESENT AND FUTURE

Improve the quality of your financial decisions by making sure that you strike a balance between what benefits you at the present and future states. Do this by listing down the possible advantages and disadvantages of an option for the short-term. The other list must contain the advantages and disadvantages of the same option in the long run.

#6: GIVE EACH OPTION A TEST RUN

When buying cars, most people take advantage of the test run. With a huge financial investment such as this, people want to make the best decision. Giving each option a test run will enable you to observe how it will impact your life.

Image Credits: unsplash.com

Research shows that people tend to make decisions differently depending on their mood. To bypass this bias, you can imagine that you have already made a decision and absorb that choice for a few days. This method allows you to determine how you will feel when you are in a range of different situations. Furthermore, you can gradually test the impact of a financial decision.

Sources: 1, 2, & 3

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Seeing cryptocurrency as a get-rich-quick investment can be a massive mistake

cryptocurrency symbols

The word “cryptocurrency” has been thrown around rather frequently these days. However, this precarious investment may not be for everyone.

In fact, please don’t take our word for it. The Monetary Authority of Singapore (MAS) has warned the public on its volatility, and that risky investment products are unsuitable for retail investors. To be honest, it’s not hard to understand why.

Do you know that between 2018 to 2020, there have been over 500 police reports of crypto-related cheating, fraud, or other crimes? Nearly 400 of them were made last year, and the news revealed that roughly S$29 million was the figure for investors’ losses.

Experts highlighted the main risks:

  • Falling for scams
  • Jumping into crypto projects that fail
  • Involving in bad investments of obscure coins
A closer look into the scam tactics

Choo Oi Yee, chief commercial officer for private capital platform ADDX, shared that scammers are tapping onto examples of people who have struck it rich in rousing the greed of investors.

Ms Choo added that there are two scams under the Ponzi scheme:

  • Money from new investors is used as returns for earlier investors.
  • Pump & dump: Scammers buy a coin to push its price up misleadingly and then dump it after others jump on the bandwagon.

Hong Qi Yu, the founder and chief executive of the digital trading platform Tokenize Xchange, also commented regarding this issue. He said that scammers might use third-party accounts to hide their mischief.

Common tactics include:

  • Hacking into accounts
  • Using undoubting individuals as money mules
  • Threatening vulnerable individuals to use their accounts

To counter the ever-evolving strategy of scammers, Mr Hong urged legitimate operators to enhance their surveillance of unusual activities. He also recommended ​​“hot” and “cold” crypto wallets to reduce the risk of being hijacked.

Do your homework before cryptocurrency dealings
a person using laptop while researching

Image Credits: unsplash.com

With all that said, Ms Choo encourages potential cryptocurrency investors to do their homework. Crypto is complex, and a sound investment strategy involving investing in a range of assets is crucial.

Ms Goh (who declined to give her full name), who lost about S$30,000 to cryptocurrency trading platform Torque, prompted the public to learn about what they’re buying.

“Learn how to use the (crypto) exchange because different exchanges have different fees. You can save a lot on fees if you’re using the right exchange for the right coins.”

Another investor, Andy (not his real name), who lost about S$38,500 as a scam victim, asks investors to do their due diligence.

“The entire blockchain and cryptocurrency space (are) highly volatile. And the technology behind it is very difficult to understand, so unless you’re highly passionate about this whole landscape, don’t see it as a get-rich-quick scheme,” he noted.

When investment opportunities sound too good to be true, they probably are. Don’t let your hard-earned money go to waste via hasty investment decisions.

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