A recent survey by a top American financial magazine has revealed that a large majority of Americans could be financially illiterate. A dismal 18% of the sample audience was able to answer three basic questions about money correctly.
The reasons for financial illiteracy call for a broader examination. But the fact remains that most of us are ignorant when it comes to the basics of finance. It is not surprising that quite a lot of Americans went broke, as they could not manage their finances properly due to insufficient knowledge, when the recession loomed large upon our country.
It is essential that we banish all misconceptions we have about money from our minds and understand basic facts that will not only give us a broader understanding of the money market, but also help us manage our personal finances better.
One of the common myths people have about money is that if you are rich, then you must be earning a high income. Undoubtedly, if your income is good, your cash position is good and you are called ‘rich’. But income is not the only measure of a person’s wealth. A high-school teacher who draws lesser than a systems engineer could well be richer, if the teacher saves most of it and gets substantial returns on her investments compared to the engineer, who is extravagant and has no investments to speak of.
Another common myth about money is that investments in equities and bonds are only for people who draw large incomes. This is absolutely untrue as you can set aside even meager amounts and invest in them prudently to make sizeable profits.
Another misconception along somewhat similar lines is that investing in stocks and bonds is akin to gambling. Yes, risks are involved, but more often than not, most investors make good profits in the financial market. Good research and expert financial advice will help you grow your money easily. Hoarding money will not get you anywhere; you must capitalize on it to create more wealth through investments.
Another popular myth is that in order to invest and save money, you have to make sacrifices and stop spending for personal pleasure. This is true to some extent, but it doesn’t mean you have to lead the life of a hermit. You can save and invest and also enjoy your money and share it with your family. You may have to do some penny-pinching if you are in debt, but you don’t have to give up on the simple pleasures of life.