quotes The importance of financial literacy for the youth

30 November 2024
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Updated 29 November 2024
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The importance of financial literacy for the youth

A 2023 report from the Saudi Central Bank has shown that only 38 percent of adults in Saudi Arabia have a basic understanding of financial concepts. Financial literacy is a critical skill to learn. It is important to empower a nation’s population to start creating awareness of financial skills and fundamentals early enough among our youth.

A key pillar of the National Saving Strategy in Vision 2030 aims to increase financial literacy, especially for the youth. But why is this important? Well, perhaps the most essential skill that comes with a good sense of financial literacy is saving and budgeting. I remember as a 12 year old how my father would give me the “outing” budget for the weekend, placing the responsibility on me to learn to prioritize and understand the opportunity cost of certain financial decisions. This idea of managing money should be ingrained in us as children so that we are more financially responsible as we grow older and have greater responsibilities.

Understanding how to set financial goals is an important skillset to possess as young adults and sets the foundation for building a successful family. Many of us find it difficult to save or to understand how to create wealth. We often spend more than we earn and may find ourselves living paycheck to paycheck. By having sound financial fundamentals, we can have created a budget that will allow us to live within our means while also setting aside funds for a rainy day. By learning more about investing, we can also have our savings work for us. These are important principles that many families lack.

Investing is an area that many people feel is beyond their capabilities. Investing is a tool that should be at everyone’s disposal, but with investing comes risk and understanding one’s risk tolerance is a key part of one’s investment strategy. Youth should be encouraged to invest under the guidance of an adult. When a young person learns how to invest and be responsible for managing some money, this will teach them important life skills. Not only will the individual appreciate what it takes to try to grow one’s funds but moreover he/she will appreciate the importance of becoming financially literate.

Understanding how to set financial goals sets the foundation for building a successful family.

For instance, investing in the capital market as a retail investor requires understanding the fundamentals of the security one is investing in. Identifying market trends and market sentiment, along with the growth prospects of the company, are key metrics. By exposing youth early on to these topics, we can help cultivate youth that are more well-versed in the stock market and enable younger investors to participate in the global market economy.

It is easy to be tempted by what sometimes appear to be quick wins, but being a strategic investor requires patience and the ability to do due diligence on each stock. It may be tempting to invest in a “hot” asset class such as Bitcoin, riding the bandwagon as its value increases, but unless one truly understands this cryptocurrency and how it works, there is a greater risk volatility and higher chance that one can lose one’s investment.

Buying low, holding, and selling high is the fundamental approach when it comes to investing. However, it is also important to understand one’s risk tolerance, which comes with experience. Creating a stock portfolio comprising different stocks requires deciding on a strategy. Am I looking to invest in highly volatile commodities with the hope of gaining 10-fold returns on my original investment? Or am I looking to invest in ETFs and look for longer-term gains? This is a balancing act, understanding how to balance between long and short term, low and high risk investments coupled with looking at the market sentiments and global events. For instance, if you invested in an index fund such as Dow Jones 10 years ago, you would have 149 percent returns today.

Whether you are an impatient investor looking for quick returns or someone in it for the long run, the key is to develop your financial literacy to better understand how to manage your money well. When the stock market crashed during the COVID-19 pandemic in 2020, I personally was able to benefit by buying some sustainable stocks at lower price points and waiting for their prices to go up in post-pandemic times. At 13 years old, I was already getting experience as an aspiring retail investor, which has continued to benefit me today.

Ultimately, we should not believe that we wait till we are in our 30s or 40s to start investing. We should advocate for learning about financial literacy at a younger age, gain greater autonomy over our finances and be more empowered to build and manage our wealth.

Yasseen Gamaleldeeen, a high school senior at the American International School of Riyadh, is a passionate finance enthusiast. He co-founded the SaudiStockDigest, a platform that teaches youth the fundamentals of investment, and founded the FinLit Society to promote financial literacy among teens.