I. What is financial literacy?
Financial literacy refers to the knowledge and skills required to understand and manage personal finances effectively such as the fundamentals of making informed decisions about spending, saving, investing and managing personal finances in a way that enhance personal financial well-being.
II. Why do teens need to be financially literate?
Financial literacy is a key factor in enabling individuals manage their personal finances efficiently, prepare for financial challenges and avoid risks associated with informal financial systems.
Furthermore, financial literacy empowers teens to choose financial products for investment wisely.
“Cultivating financial literacy in teens today means shaping the potential investors of tomorrow”.
The importance of financial literacy is underscored by the following points:
Young people can make smart decisions when they have the basics of money management.
- Make smart decisions: teens can make smart decisions when they have a solid foundation in money management such as saving, investing and credit management. It enables them to navigate financial challenges effectively and reduce exposure to financial risks and maintain long-term financial health.
- Reduce financial stress: when individuals have the skills to manage their finances effectively, they tend to experience less stress and anxiety or financial instability and this enables them to prepare for emergencies and unexpected expenses without negatively impacting their mental well-being and leading to a more balanced life.
- Achieve financial freedom: this refers to a state in which an individual has enough money to meet personal needs and build the life that they desire without relying solely on a monthly income. In financial terms, financial freedom is achieved when the total amount of passive income exceeds regular expenses. However, the definition of financial freedom may vary from person to person.
- Increase saving and investing: cultivating the mindset and habit of saving to achieve short-term financial goals and build a financial brace for future emergencies. It also enables individuals to make informed investment decisions aimed at generate additional passive income.
III. Financial challenges faced by teens
- Lack of financial literacy: many teens do not have sufficient knowledge about money management and are unaware of the importance of a budget plan for their expenses.
- Overspending beyond their capabilities: due to rapid technological advancement and widespread influence of advertising, some teens tend to spend more than they can afford for example, by making impulsive online purchase or making installment payments without considering future consequences.
- Use of credit: many students rely on credit cards or take out loans education, daily expenses or personal needs. However, without a clear financial plan, this can lead to growing debt and serious financial issues in the future.
IV. Tips for managing personal finances
- Prepare a financial plan: clearly define your monthly income and expenses. For instance, you may allocate your budget as follows: 50% for essential expenses, 30% for emergency funds and 20% for savings or investments.
- Leverage technology as a tool: use financial management apps such as “Spendee”, “MISA Money Keeper” or “Wallet” to track your spending.
- Start Cultivating the habit of saving: begin by separating your monthly income and expenses clearly each month. Whether you save a little or a lot, what matters is begin saving early and stay consistent. This habit can help you avoid financial difficulties in the future. As the saying goes, “The best time to plant a tree was 20 years ago and the second-best time is now”.
- Learn about and start investing in the securities market: investing is an essential practice that everyone should understand and consider, in addition to your regular career or business, to generate passive income. Among the various investment options available, the securities market has become an attractive and high-potential choice for beginners with minimal capital. Currently, financial instruments available for investment in the securities market include stocks, bonds, Collective Investment Scheme (CIS) and derivatives.
***Disclaimer: This article has been compiled solely for informative and educational purposes. It is not intended to offer any recommendations or as investment advice. The SERC and Phnom Penh Post are not liable for any losses or damages caused by using it in such a way.
Prepared by: Securities and Exchange Regulator of Cambodia
Securities Intermediaries Supervision Department
Email: [email protected]
Telephone: 023 855 611
Prepared by៖ SecuritiesandExchangeRegulator of Cambodia,
Department of Research, Training, Securities Market Development and International Relations
Email៖ [email protected]
Telephone៖ 023 855 611
