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Why is financial literacy so important?

Last Updated 07 February 2022, 15:38 IST

Often, talking about finances in front of children is considered taboo. But the ideal approach to financial education is to ‘catch them young.’

The stock market is considered a good place to generate wealth over a short period of time. Today, many more young people are thinking about managing their finances by exploring different avenues like the stock market and mutual funds.

But half-learned knowledge is more dangerous than knowing nothing at all.

While young professionals are eager to explore the financial markets, the crucial questions remain: Have they done their homework?

Are they ready? Have they put in an effort to learn the basics?

The influencers: There is a new trend going on after the advent of smartphones in our society; from gardening, cooking, or make-up to learning the stock market, it's all YouTube!

Some people fool their viewers by attracting them with various stock market methodologies and showing huge profits! If it were so easy to make money in the market, there would be no other careers.

Latesh G, an experienced trader who runs his own investment company in Bengaluru, says, "When we talk about options trading, most people don't know how and why options and futures derivatives were introduced in the world. They don't even know it was created to hedge against the risks of a fall in the bought share; people blindly trade and lose money, which is disheartening.”

Kishan K, a chartered accountant & an independent trader, believes that millennials can benefit by following the mantra of 'First Learn and then Earn'.

Or else, the market is a place where the retail traders end up 'Eating like chickens and shitting like elephants' as cited by the renowned author Satyajit Das in his book Traders, Guns & Money - Known and Unknowns in the Dazzling World of Derivatives.

He states that first, it is important to have clarity on your financial objectives and then understand the market and its financial instruments, especially derivatives, as they are not as rosy and straightforward as advertised.

Another word of advice for novice traders is to stick to a few prominent strategies and not try to master them all. This is because trading in the market is a probability game and the only simple way to get through and make a fortune is through appropriate risk management.

Today, hardly 3% of Indians invest in the stock market, which is very low compared to China and other countries.

There are several prominent reasons for people not participating — which includes the perception that it is nothing but organised gambling.

The only way to change this is to spread more awareness among the people.

To summarise, finance is the heart of carrying out any activity in society, and the best finance manager is the one who would be financially literate.

(The author is an investment banking professional and a stock market enthusiast)

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(Published 07 February 2022, 14:58 IST)

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