#1- Financial Literacy

Hey friends! :)

Welcome to the Finance at your Fingertips blog! Here, we'll learn all about different financial strategies that you can use as a teenager to set you up for future financial success.

This blog is an introduction on financial literacy. Over the coming weeks, we'll dive into more topics on finance so be sure to stay tuned.

WHAT REALLY IS FINANCIAL LITERACY?

Financial literacy is the general understanding of concepts including saving, investing and debt that leads to an overall sense of financial well-being.

TECHNIQUES FOR MANAGING PERSONAL FINANCE

• BUDGETING: Creating a budget helps you achieve your financial goals (whether long or short term) by allowing you to plan out your expenses. We'll be sure to do a post that's focused specifically on planning you budget really soon.

• UNDERSTANDING INTEREST RATES: Interest rates are simply portions (or percentages) of a loan that is charged as interest to a borrower. In simpler terms, it's the money that's charged when one takes out a loan. They are typically expressed as percentages, so it would be dependent on the value of the borrowed money. Understanding the interest rates can be beneficial as it helps you make wiser decisions on how, when and where you spend.

• SAVING: Learning how to save from early on is important as it will overtime increase your wealth (because of compound interest). It is advised that you save your money in an account so that it will grow with you. Believe it or not, when you open an account, the bank is PAYING YOU to keep your cash in the account ;).

• INVESTING: When you invest in something, you buy an asset (for example, shares or a property) with the intention of earning from it. Many people invest in stocks, which are simply units of ownership in a company. These companies may even also pay dividends, which come from their profit made, so you are not only able to make money from your stock appreciation (how much your stock increases in value), but also the dividends paid to you.

STOCKS VS. SAVINGS 🤔

• Generally, overtime, stocks give higher returns than savings accounts. For example in 2019, the average interest rate on savings accounts was 1.65%, while, the average return on stocks was 34.2%. So, if you had invested in stocks, you would have made roughly 32.6% more than what you made if your money was in a savings account.

• To give you actual values - say you started with $100,000. If you had put that money in a savings account, at the end of the year, you would have approximately $101,650. On the other hand, if you had invested in stocks, you would have had approximately $134,200. Bear in mind that stocks generally have more risks than savings accounts! Also remember, these are averaged values, so it would depend on the specific stocks you purchased/bank with which you had an account. We'll discuss stocks in detail very soon!

• KEY NOTE: In Jamaica, capital appreciation/gains made from stocks are not taxed, but the interest you earn from a savings account is taxed. This means that the money you earn from you stocks are not taxed, however, the money you earn from a savings account is taxed.

CAUTION! DON'T LIVE ABOVE YOUR MEANS

• When you are living above your means, you are spending more money than your current income allows. This immediately can put your finances at risk by increasing debt, not having enough for bills, and not being able to save any money. So, it is important that, when budgeting, you take into consideration how much you are earning.

That's it for today folks! We hope you learnt a little about financial literacy!

Be sure to check us out soon for our next installment in our Finance Fridays series!

Until then, "Let's be like Krabs, and get that bag"🤑