You are here: HomeWallOpinionsArticles2020 10 13Article 1083976

Opinions of Tuesday, 13 October 2020

Columnist: Dominic Dominion Nyarko Bempong

Reducing risk through financial literacy

The Ghana cedi notes The Ghana cedi notes

I really get amused and highly fascinated when I wake up to the news to hear and read about so many people whose hard income have gone down into the drains all in the name of investment and sound financial security.

Most of these fraudulent and Ponzi scheme companies would not have to operate in the first place if the investing public had basic financial knowledge to assess the feasibility and performance of these companies.

Financial literacy is so important in our times than in any other, especially, the issue of money is becoming a forefront in everything that we do.

If you have the notion that financial literacy should be left only to the Accounting and finance professionals, then you are in to regret dearly; am not saying you should go to college to get yourself a degree in accounting, but you should equip yourself with sound basic financial knowledge by reading and researching to avoid being the next victim of these scam and fraud companies and the ability to take control over your finances.

People in all professionals should and be interested in learning about finance since their everyday lives revolve around money; especially, when many have shown interest in investing and attaining financial security.

In this article, am going to highlight four broad areas that increase your financial literacy and make you stand out among the crowd when it comes to money;

Literacy one: Accounting: I can’t highlight the importance of gaining knowledge in this area. A vital skill that goes a long way to build you financially and able to have a discerning eye when it comes analysing financial statements.

You should be able to understand basic accounting language and apply it to your everyday life- by establishing controls such as budgeting, taxation and investment. Accounting enables you to assess companies’ financial records even before you invest into it.

Accounting helps you to reconcile your bank statement and confidently address any discrepancies that come up. Just look at the number of deaths and mental disorders that these closure of investment companies came about, and is surprising and sad to know high revered professionals fell victim to these scams. If I have my way, Accounting should be a subject taught under all disciplines in the tertiary.

Your knowledge in accounting helps you to identify the strengths and weaknesses of any business which makes you informed on the ones to which you feel secured to invest or otherwise.

Literacy two: Investing: Investing has become very vital in our times. Allowing your money to work for you is the passion that drives many to invest. But how knowledgeable are you with the science of investing? Do you just follow the crowd or you conduct due diligence?

Understanding investment not makes you very rich but helps you secure your funds from fraudulent deals. Therefore, extreme care needs to be taken when you are going to invest with your hard earned money. Can you read and understand the financial statement of these investment companies? Have you tracked their standing with the relevant regulatory bodies?

Are you carried away by the outrageous interest they promise to put on your money as compared to the standard interest rates on the market?

Another area of investing has to do with investing in start-ups and early business. Without sound knowledge in understanding figures and numbers that they present to you, you will make a grievous mistake that can make harm your finances. Know and understand the business idea and the financial projections they present to you and assess the feasibility and viability of the business you are going to invest in.

Investing is an area when done right, builds your financial capabilities and makes you leave a financially secured life.

Literacy 3: Understanding Financial Markets: The markets involve supply and demand. Your knowledge about the market helps you to know which type of companies to buy shares from or when to sell your shares.

The markets determines which companies are performing better and the ones performing poorly. Gaining strong knowledge about the markets makes you access strongly the price-earnings (p/e ratio) of companies.

Basically, financial markets facilitate raising of capital; transfer of risk; transfer of liquidity and international trade.

Literacy 4: Law: Your basic knowledge in business and company law helps you avoid the mistake in investing and operating a business that is against the law. Your funds can go down the drain not because the business is not profitable but rather its modus operandis is frowned upon by the law, and ignorance of the law is no excuse.

Care and due diligence should be given when making business investment. Know the taxation status of the business because so many business have been closed down as a result of not honouring their tax obligation. Knowledge in law can help the business enjoy tax advantages and also to avoid unnecessary lawsuits that can cripple the progress of the business.

From the above, you will realise that it is a serious thing if you should be leaving in the dark when financial literacy is concerned. I repeat no matter your profession, you should be interested in gaining basic knowledge in finance to keep you from financial distress and pain.
Entrepreneurs should be well endowed with the above to move their businesses to the next level. Developing your financial literacy and intelligence enables you to make prudent financial decisions that secure your finances.

The author is the founder of AcctFine, an educational institution that teach accounting and finance to non-accounting professionals and entrepreneurs. He also consults to entrepreneurs especially in the area of accounting and taxation.