Market financial investors have found it necessary to develop adequate financial knowledge for proper and progressive investments. It is essential for them to understand financial assets and terms and conditions that influence financial market transactions in the stock exchange. This knowledge has helped some investors to decide which type of bonds should they buy and which ones are risky.
This saves them from draining heavy funds on unnecessary derivatives, bonds, or other financial assets that will cost them in the future. This paper covers financial literacy operations, benefits that accrue to those who acquire the knowledge, and some of the challenges relating to financial literacy education of these market investors. The paper also explores what should be done to turn household consumption into profitable market investment through provision of financial literacy education in our educational institutions such as universities and colleges. The paper concludes by looking at how financial literacy education affects householders’ decisions and who forms one of the largest portions of market investors through borrowing and lending, risk averseness, discount rates, and lastly the influence of employers, the stock market, and neighbours.
Currently, financial world is increasingly becoming complex with market investors having numerous financial products to chose from in the financial market. This calls for them to be financially literate so as to choose wisely. Financial literacy education of an investor refers to the process during which they are educated on how to identify best financial products in the stock exchange and invest their money wisely. Some of the financial assets such as bonds, derivatives, futures, and forward contracts require an investor to have an adequate financial knowledge on riskiness and profitability.
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Financial literacy can be obtained from financial institutions through studies, seminars, or even discussions. This knowledge does not only help investors to understand the mixture of financial assets to invest in, but it also serves them well to decide how much to save, how much money to allocate to retirement benefit schemes, and, lastly, on which proportion to go to consumption. Several benefits have been brought by financial education to market investors. In addition to the ones we have, various sources of the financial literacy education as outlined in the literature review below.
Financial education has been found to contribute greatly to the financial participation in Europe and in United States (Darragh 2007). This literature review section explores why this has happened as part of determinants of financial education.
Studies reveal that there are several factors globally that have contributed to growing importance of financial education of investors. These factors have led to emergence of market investors who have wider knowledge of the financial market and who are ready to harness new opportunities through trading bonds and shares to get rich. Main contributors to acquisition of financial education are discussed further.
First, over the recent years most of the states globally have advocated for teaching financial literacy in schools. This has resulted from reduction of employment opportunities. Therefore, it was decided that this education will help students after school to be financially aware about where to invest and reap profits that will enable them live better lives and even create job opportunities for others.
In Australia, for example, the National Consumers and Financial Literacy Network together with ministerial council for education, training, and youth affairs saw the need to introduce this program and initiated it in schools as a way to facilitate more investments. The program is currently compulsory for all children over the age of ten years. Financial literacy education is not offered as a subject, but it has rather been integrated in English, economics, mathematics, and commerce courses among other related subjects.
Secondly, the literacy program was introduced in many countries such as UK and Australia as part of life of most people regardless of their age. It was found that high financial literacy made individuals develop good psychological and physical capabilities. Therefore, since it is seen as a social inclusion item, most market investors decided to gain financial knowledge and use it to invest. In schools most of the students are taught how buying and selling financial securities such as bond and shares significantly helps individuals to make a lot of money or get rich fast thus meeting all their financial needs.
Thirdly, the government saw the benefits of financial literacy in improving health of the society (Wright 2007). It places a lot of advertisements on how individuals can buy financial assets and meet their financial investment needs. As a result, governments have reduced overdependence on its programs and lowered the debt ratio. Thus the literacy of investors is enhanced meaning that savings also increase.
Lastly, the factor promoting financial literacy is the presence of strong capital markets’ regulatory frameworks that safeguard rights of market investors hence making them feel more secure to invest. This has been evident in the UK and United States of America. Companies are always being privatized to attract investors. This has created the need to provide more literacy education.
