Home' Trinidad and Tobago Guardian : April 6th 2014 Contents Part I
This article is the first in a series
from members of the Caribbean
Financial Planning Association
(CFPA) to inform and guide readers
about their day-to-day financial
matters and decision making. We
begin by exploring a concept which
has become critical around the
world due to its importance in
developed as well as emerging
Financial literacy has several def-
initions. But the one the CFPA
favours is best described, rather
than defined, as:
"Financial literacy, or capability, is a relative
term. It describes the ability of a person to
understand the concepts and complexities of
a financial product, service or process that
they are expected to deal with responsibly (for
themselves or others) as well as the conse-
quences of not doing so. One s level of literacy
is the key indicator of accountability for all
financially-related decisions. Typical levels of
competence range from student, adult, man-
ager, board member, government minister to
state regulator levels."
Such a broad scope would require several
articles but, for now, we shall focus on just
What does financial literacy have to do with
an individual or family?
Why is it important?
We all live lives dependent on money and
its many variations in the form of financial
products, services and currencies. So if we are
not literate in this arena we are likely to make
uninformed decisions or be taken advantage
of by others who know more than we do.
Regrettably, money is one of the most mis-
understood of utilities while being arguably
the most essential to our well-being.
Added to which, the management of money
is an art as well as a science that everyone
needs to be financially savvy or literate about
or face the consequences.
What then is money management? Or, for
this example, personal money management?
Personal money management is actually
personal lifestyle management based on avail-
able dollars and cents; apportioned according
to one s preferences, priorities and limitations.
So while money management is commonly
associated with financial literacy, it is really
based on one s motivation, values and disci-
pline, or the lack thereof. Therefore, poor
money management does not stem from lack
of financial literacy but from a poorly managed
Financial literacy as a solution assumes that
the related financial issues are rooted in knowl-
edge, or accepted ignorance, about financial
terms, instruments, costs, benefits and risks.
But if that assumption is correct, no account-
ant, banker or stockbroker should run into
difficulty arising out of poor money manage-
ment. But this is not the case. What then is
the mystery about money?
First of all, money of itself has no value.
We cannot eat it, drive in it, wear it, nor live
in it. Its value is derived from whatever it can
be exchanged for. The choice we exercise in
making such an exchange is informed by the
value we attach to what is desired or expected.
Furthermore, money often has an associated
appeal which overrides our rational judgment.
That is, the promise of power, influence or
self-importance that money can bring; or fear
of the exact opposite if money is lacking. So
it is vital to know what our personal values
are first and let them dictate how we deal with
money rather than the other way round.
Money is not just a necessity for good in
our lives it is also a powerful fuel for addictions.
Apart from giving us access to physically,
harmful, addictive substances (alcohol, drugs,
etc) it can also addict us psychologically to
become victims of fashion, computer gaming,
blogging, mobile phone texting, parties and
What is causing this behaviour?
Apart from the easy availability of credit
(overdrafts, credit cards, loans, hire purchase
and mortgages) to buy cars and houses they
cannot afford, the next biggest influence on
people s lives today is new media; the Internet,
smart phones, cable TV and social media
(Facebook, Twitter, etc). The overnight empow-
erment of children---even pre-teen, with free
access to most of the foregoing---is causing
havoc in families and some schools; even sui-
cides and paedophile crimes. But the devices
that allow free access are far from free and
brand competition has overpowered rational
decision making at all levels in a consumer
race to the top.
As a wise man said recently, "People today
are using money they don t have, to buy things
they don t need, to impress people they don t
Equally, saving money is considered old
fashioned, since instant gratification is possible
via credit options instead of waiting. But the
reality of living on borrowed money without
savings will never change.
Vance Pickard s book, The Hidden Per-
suaders, describes this phenomenon in exqui-
site detail. By the end of each year, we are
financially ravished by Christmas, weddings,
Mother s Day, Father s Day, Carnival, Valentine s
Day, national festivals, hire purchase deals,
fly-now-pay-later plans and on goes the list.
No wonder after three or four decades of
employment most people in developed coun-
tries have inadequate savings, according to
So, is there a need for greater financial lit-
eracy at all levels in society?
The answer seems to be an unconditional
"yes". But without a proper grasp of behavioural
finance to go with it, financial education is
meaningless. Behavioural finance has already
been described above, not by name. But in
jargon-speak it is: "The study of the effects
of social, cognitive, and emotional factors on
the economic decisions of individuals and
institutions and the consequences for market
prices, returns and resource allocation."
More widely, the study of behavioural eco-
nomics includes how market decisions are
made and the mechanisms that drive public
choice. In simple language, this means that
a person s financial literacy, which we all have
in varying degrees, is very much connected
with their social, emotional and cognitive (ie
thinking and awareness) characteristics. But
the herd instinct (ie following the crowd) is
a very powerful driver of which even the most
intelligent people are victims.
Especially with our next generation youth,
financial literacy and behavioural finance have
to be placed within the value-based context
of the home, the community and country,
where the foundation of self-esteem, respon-
sibility and a sense of mission must be devel-
oped and sustained. It is upon this foundation
that knowledge of financial products, terms
and related benefits must be layered respon-
sibly. Character should motivate choice which
is informed by knowledge.
This brings us right back to the opening
remarks that while money management is
commonly associated with financial literacy,
it is really based on one s motivation, values
and discipline, or the lack thereof. So the value
of advice that people get from financial advisors
should not be judged on the metrics alone.
Charts and numbers are important but eco-
nomic projections can never be relied upon
fully since no one can predict the future. Only
death and taxes are certain, according to Ben-
The mission of the CFPA is to train and
educate its financial advisor membership in
how to empower others in their financial deci-
sion making, leading hopefully to self-reliance
in their family or business lives. This is the
result of being financially literate, as opposed
to being dependent on others for advice, as
life events or the unexpected arises. That deci-
sion making leads to buying, selling or even
holding, at a good time (no one can predict
the best time). However, the empowerment
of consumers of financial products and services,
to make better informed and less pressured
decisions, must include being coached by a
trusted adviser. This is due to the complex
financial world we now live in and no time
to spare to become experts.
The next article will conclude with a simple
plan, for everyone, how to grow their financial
net worth and live a better life. See also our
Web site: www.caribfpa.com
Lloyd Ince, ChFC, CLU, LOA (Institute of
Canadian Bankers) is the president,
Caribbean Financial Planning Association
APRIL 2014 • WEEK ONE www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
HOUSEHOLD FINANCES | SBG17
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