“IMAGINE THE DISASTERS that would befall your company if your chief financial officer didn’t understand basic finance. That’s the situation facing most of your employees, who are, in effect, the ill-prepared CFOs of their own lives, responsible for setting household financial policies and evaluating complex borrowing, investment, and insurance choices.” (Lusardi and Tufano, HBR, 2008)
Financial literacy is a basic concept in understanding money and its use in daily life. It also incorporates an understanding of financial concepts such as insurance, credit and the importance of saving and investing your money.
Assistant Professor of Finance (Education) from Singapore Management University, Mr Aurobindo Ghosh, PhD shares with us that business schools of some universities run courses on financial planning. For example, at Singapore Management University’s Lee Kong Chian School of Business, there is an elective course called Personal Finance. However, such courses might not be available in more technology or liberal arts orientated programs in tertiary educational institutions.
There are initiatives like the Citi-SMU Financial Literacy for Young Adults, Singapore’s first structured financial literacy programme for young adults, which has contributed to formalizing the financial literacy curriculum at the Institute of Technical Education (ITE). It is also participating in the development of such financial literacy programmes in local polytechnics.
However, in a sample survey conducted by BTO on university students and financial planning, it is found that 87% of university students believe that they are not financially ready for the future.
Though technology can help students make better financial decisions, the basic savings habit has to be cultivated. Regardless of income level or major, most university students have the ability to save for retirement – it is whether you have the desire to start saving this early.
Time is on your side
Many university students hesitate to save for retirement as they feel that they do not have sufficient money to make a difference. The point that is missed: saving early is the key for building a nest for retirement. It helps you cultivate the habit of saving from a young age and furthermore, saving for retirement is about maximising the compound interest which is interest that builds onto itself. Over a long period of time, your original contributions will grow exponentially because of compound interest.
You will always face reasons to not save – you want to take a trip during your summer break or you need to get pay for new textbooks. The thing to note is that this situation doesn’t change when you graduate. They simply shift into other priorities like buying a new car, paying for a wedding or purchasing a property.
The sooner you can start saving for retirement, the more routine it will become a routine and the fewer excuses you’ll have. Building a nest egg will become a habit that’s a familiar to you.
Savings accounts are not just a good way to have money to fall back on in case of emergency, they are, in fact, a gateway to financial health and a diversified balance sheet for young adults. Saving early enables you to amass a reasonably sized amount that will allow you to take opportunities that you otherwise would not be able to if you always lived paycheque to paycheque.