Why is Learning Personal Finance Important?

by Ryan

Personal Finance is one of the most important aspects of your life, but it isn’t taught in most schools and the majority of people in the world are financially illiterate. Although not exciting to most, personal finance directly relates to your life everyday.

Personal finance by definition is how you manage your money. But what is money really? Below is my interpretation of what money truly is.

Money = Choice = Freedom = Ability to Fulfill Your Dreams and Purpose.

The important thing to realize is that money affects how you lead your life. If you don’t have money you can’t do many of the things you want in life. Money is simply a tool that gives you choice along the way. This, however, doesn’t mean they will be the correct choices.

Without money, you can’t buy food, you can’t pay rent, and you can’t spend on entertainment. What about that summer trip to Paris? Not gonna happen if you don’t have money.

Without learning personal finance, you’re going to lead a completely different life than someone with personal finance knowledge. Basically, you’ll be less free than them. You’ll be imprisoned by the stuff you own, your job, and the reoccurring feeling of not having enough money. Living paycheck to paycheck is a common trait of those who do not have personal finance knowledge. Learning about personal finance gives you the knowledge and understanding to make smart money choices. Thus, you become more in control of your own life and are empowered to do the things that matter most to you.

Learning how to manage your money means learning how to become free. It also means learning how to become smarter and more aware of opportunities in your life. Money is power and learning personal finance will teach you how to become more powerful.

One of the cornerstone concepts of personal finance is the concept of the time value of money. Below is a classic example, but it’s so incredibly important that I’d like to highlight it here.

Pretend for a moment that you have a 25 year old and a 35 year old.

The 25 year old invests $2,000 a year until the age of 65
The 35 year old invests $2,000 a year until the age of 65

We’ll assume they both get the same rate of return on their dollar, in this example we’ll use 8%. Where will each of them be when they reach the age of 65?

The 25 year old has: $518,113

The 35 year old has: $226,566

The difference is $291,547.

The only difference is the 25 year old started investing 10 years earlier and invested $10,000 more. However, that difference made him more than twice that of the 35 year old.

In this instance the knowledge of investing young was worth $291,547. This is only one example of the many lessons personal finance will teach you.

Personal finance teaches you about money and money is the ability to make choice and gain power. Learning about personal finance will give you freedom in your life and the ability to accomplish your dreams. And that my friends, is why learning personal finance is so important.

If your personal finances have left you in debt, visit http://www.dacscotland.co.uk for information and advice.

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{ 10 comments… read them below or add one }

Ken February 3, 2010 at 12:50 am

Great post. I read yesterday that someone said ‘ignorance is bliss.’ This is so NOT TRUE when it comes to money. The more you know and act on what you know the better off you will be.
.-= Ken´s last blog ..Weekend Roundup =-.

Investing Newbie February 3, 2010 at 8:17 am

I was just thinking about this recently – there needs to be an initiative in our education system where we teach personal finance. I personally think having a basic PF class in lieu of an English/Math core class at colleges would be more practical and beneficial.
.-= Investing Newbie´s last blog ..Expense Report (Jan 2010) =-.

Ryan February 3, 2010 at 2:26 pm

I think some schools have financial literacy programs, but most don’t. I agree, and believe there should be more of a push to get this established in every school. I don’t see any downside, however, money seems like such a taboo and many of the administrators and leaders of the schools probably aren’t receptive to change when they don’t even understand the importance of the idea themselves… Maybe we should start a PF blogger lobby group to change this???

Tracy February 3, 2010 at 2:52 pm

I wish I was as far ahead of the game as you are when I was your age. Thank goodness it’s never too late. Money doesn’t buy happiness, but it can make a huge difference in your options and that definitely spells freedom.
.-= Tracy´s last blog ..Are You Happy? What’s Your Impact? Take The Test! =-.

Financial Samurai February 3, 2010 at 7:46 pm

Good point. Better to know this stuff now before our lives our half older. Thank goodness for the internet and the ease of information transformation!
.-= Financial Samurai´s last blog ..Someone Always Farts In A Crowd =-.

Ryan February 4, 2010 at 9:52 am

Yup, just trying to make it as clear as possible why personal finance isn’t just some boring topic that only nerdy people learn. There’s a lot of power behind it.
.-= Ryan´s last blog ..The Part Time Job Search =-.

FinEngr February 4, 2010 at 7:09 pm

Its amazing. We’re all little links – how do we make the chain?

It seems like teaching PF in schools is an on-going debate. Are there credit card lobbyists stonewalling it from actually happening?

Paragraph worth re-reading: “Without learning personal finance, you’re going to lead a completely different life…”
.-= FinEngr´s last blog ..Which Way Are You Outsourcing? =-.

Darren June 7, 2010 at 7:16 am

I’m a bit late in replying, but I think learning personal finance is important because we deal with it one way or another almost everday of our lives. It could be little things like setting up a budget before buying groceries, or bigger things like determining how to invest your money, but they’re all related in some way.

Without some knowledge of at least of basics of how money works, I think we’d all complain about not having enough, and have all sorts of money problems.
.-= Darren´s last blog ..Business Advice – What We Can Learn From Amish Success =-.

Gupta VK August 26, 2010 at 10:07 pm

Awareness about Personal Finance is essential for every body. Earlier we start the better it is. The life will make a sigificant difference for persons having fair knowledge about Personal Finance.

Ayato September 19, 2010 at 4:30 pm

Bottom line: without developing personal finance skills, your life is going to be hell. As a 21 year old in the current economy, I’m trying to do this as quickly as possible before I get out of college. I’ve recently come to the realization that my life is not what it should be, and this is merely because I never paid attention to my parents’ financial advice when I was younger. I’m not paying for it now—rather, the fear of graduation has sort of shocked me into action. Better now than after college. Neither I nor the rest of my 50% unemployed generation is going to get this chance again. Do it while you’re in college.

-Someone feeling the potentially imminent pinch

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