Tips for developing your financial life
JOSEPHINE OGUNDEJI writes on the mindset that one must adopt to handle money well
A PwC report stated, “Poverty levels are projected to increase to 38.8 per cent in 2024.
“Despite the high unemployment rate in the country, low consumer spending and purchasing power remain an issue, especially in the absence of a commensurate increase in the minimum wage to mitigate the inflationary growth in the economy.”
Despite being Africa’s largest economy and most populous, Nigeria offers limited opportunities to the majority of its citizens.
According to a 2024 World Bank report, Nigerians born in 2020 are expected to be future workers 36 per cent as productive as they could be if they had full access to education and health, the 7th lowest human capital index in the world.
It stated, “Weak job creation and entrepreneurial prospects stifle the absorption of the 3.5 million Nigerians entering the labour force every year, and many workers choose to emigrate in search of better opportunities.
“The poverty rate is estimated to have reached 38.9 per cent in 2023, with an estimated 87 million Nigerians living below the poverty line, the world’s second-largest poor population after India.”
The majority of the population of Nigeria is young, with over half living on less than $2 a day. Understanding how to manage finances is crucial for economic stability and growth.
However, a significant knowledge gap persists, with only 38 per cent of adults possessing a high level of financial literacy, according to the Central Bank of Nigeria’s 2024 survey.
A lack of financial knowledge can lead to poor decision-making, perpetuating poverty and inequality. As a result, acquiring essential financial literacy skills is vital for individuals to make informed decisions about their financial resources, navigate the complexities of personal finance, and contribute to the country’s economic development.
The latest Access to Finance report by Enhancing Financial Innovation and Access revealed that nearly 50 per cent of adult Nigerians were excluded due to poverty.
According to the report, this was despite the growth recorded in formal financial inclusion in the country in 2023.
EFInA disclosed that formal financial inclusion grew from 56 per cent in 2020 to 64 per cent in 2023.
While describing this as good progress, it noted that approximately 40 million adult Nigerians remain formally excluded.
The report commended the Central Bank of Nigeria for encouraging competition in the market and enabling a non-bank-led approach. It, however, noted that formal access to 64 per cent is only the beginning.
“We need the ecosystem to do more to give the last mile access, and we need to focus on deepening inclusion for those with access.
“The rapid growth of access to payment is not translating to significant improvement in access to credit, savings pensions, and insurance, where the social impact of financial inclusion would be bigger,” EFInA said.
Driving inclusion with poverty alleviation
EFInA said the government would need to formulate policies addressing poverty to drive financial inclusion.
“Nearly 50 per cent of adults have no financial account because they have no income. Complementary policies to financial inclusion that tackle poverty with regard to social investments in education, vocational skills, entrepreneurship, health, and market-friendly economic policies are important to ensure a wider social impact of financial inclusion.
“There are significant disparities in the data released today that demonstrate the face of exclusion. It is predominantly in the North and rural communities. It is more likely to be female, youth, or farmers.
“We must ensure that incentives exist on both the supply side and demand side to serve excluded communities. We must be intentional about serving these communities,” it stated.
The EFInA survey further revealed that one-third of adults in Nigeria had low financial capability and found it difficult to meet their financial needs, describing that high liquidity distress and shocks such as health, economy, and climate ultimately impact the financial well-being of many Nigerians.
“In the face of an emergency, 78 per cent of adults (87 million) will find it difficult to generate NGN75,000 in seven days.
“With over one-third of adults reporting low financial capability, and relatively low access to formal efficient mechanisms to meet financial needs, Nigeria reports a 12 per cent drop in the proportion of financially healthy adults,” it stated.
Due to the huge gap in personal finance knowledge in Nigeria’s educational systems, the Chief Executive Officer of Money Africa, Oluwatosin Olasiende, advocated for more programmes to capture the young population into the personal finance knowledge net when speaking to our correspondent in an interview.
The good news is, if you’re under 30, there is no better time to play catch up and start educating yourself about personal finance. Just like the dividend of an investment, the earlier you start, the better off you will be in the long term.
In a newsletter sent via email to The PUNCH, Olaseinde wrote on the importance of self-investment.
She said, “Invest in you by expanding your knowledge and skills. Consider taking courses or attending workshops that could help you advance in your career. Investing in yourself will pay off in the long run and help you increase your income potential.”
Invest in financial mindset
In an interview with The PUNCH, a data analyst, Adedamola Adedoyin, asserted that investing was not just about putting money into assets, it is a mindset.
He said, “It requires a certain way of thinking, discipline, and a long-term perspective. Investors need to have a growth mindset, understanding that wealth creation is a journey, not a destination.
“Patience is a crucial aspect of the investing mindset. Investing is a long-term game, requiring the ability to wait and let compound interest work its magic.
“This means resisting the temptation to buy and sell based on short-term market fluctuations.”
Adedoyin noted that continuous education and learning were also vital components of an investing mindset.
He added, “Discipline is also essential, as investors must stick to their strategy, avoiding impulsive decisions based on emotions. Fear and greed are common pitfalls that can lead to costly mistakes. By staying disciplined, investors can avoid making emotional decisions and stay focused on their long-term goals.
“Investors also need to have a certain level of risk tolerance, as investing always involves some level of uncertainty. This doesn’t mean taking reckless risks, but rather being comfortable with the possibility of short-term losses in pursuit of long-term gains.
“Staying informed about the market and personal finance is essential for making informed decisions and avoiding costly mistakes.”
Read books
In a similar vein, the financial educator and convener of the BoardRoom, Kelechi Godfrey, gave his recommendations on personal financial literacy steps that will turn anyone’s life around and provide the concrete personal finance insight needed for successful money management.
According to him, books have always been a credible source of knowledge for individuals across the globe.
Speaking about his favourite book selections and key takeaways, Godfrey highlighted that reading books on personal finance would open the eyes to the importance of taking control of one’s life at an early stage to control their financial future and make sound decisions.
He said, “The major lessons are to live within your means, save and invest wisely, and seek advice from experts.”
Godfrey stated that finance authors who published such books helped outline the importance of self-awareness.
“When it comes to managing money, long-term planning, and building an investment behaviour is essential.”
Sharing more knowledge gleaned from finance books, Godfrey said personal finance books help envisage the average Nigerian financial life.
“Poverty lives in the best part of the city, drives the best cars, and uses the latest gadgets, but cannot deal with financial obligations as they arrive.
He explained that reading is an eye-opener, as finance literacy books “outline the need to restructure bad financial habits with beautiful storylines that engage readers in ways to improve one’s financial life”.
Look out for role models
Due to the growth of technology access and social awareness through communities like Instagram, LinkedIn, Facebook, TikTok, and X, many young people have picked up both good and bad financial habits.
On the flip side, having a good financial role model will help with accountability and reality checks on expenses and income generation.
Meanwhile, the Chief Executive Officer of Smart Stewards, Sola Adesakin, explained in an episode of her Smart Steward programme on YouTube that money is an integral tool for living.
She said, “Like Dave Ramsey, one of America’s renowned finance coaches, will usually say that building wealth is a marathon and not a sprint. You need to carefully consider the lives of people who have, you know, put in the work—people who have viable results, built wealth over a long period, and whose results are showing. And you need to learn from them.”
Adesakin urged participants to pay attention to how they handle money challenges and the strategies they put in place to build wealth.
She defined a role model as someone “you desire to pattern your life after and say this is the kind of results I want to see in my life”.
Generate passive income
The author of “Rich Dad, Poor Dad,” Robert Kiyosaki, emphasised the importance of investing in assets that generate passive income.
He advised, “Invest in assets that generate passive income, such as real estate or dividend-paying stocks. This will help you build wealth over time and achieve financial independence
“My rich dad taught me to build assets that generated passive income, income that did not require my presence. He taught me to build a business that could run without me, so I could build wealth without working. The poor dad, on the other hand, taught me to get a good job with a high salary, which meant I had to work hard to earn a living.
“Rich people acquire assets that generate passive income. Poor people acquire liabilities that generate expenses. That’s why the rich get richer, and the poor get poorer.”
Passive income is a powerful financial strategy that allows you to earn money with minimal ongoing effort, providing a steady stream of revenue while freeing up your time for other pursuits.
Unlike active income, which requires continuous work and time investment, passive income typically involves an initial investment of time, money, or resources that generates returns over time with little additional effort.
Common sources of passive income include real estate investments, dividend-yielding stocks, peer-to-peer lending, and creating digital products like e-books or online courses.
Building passive income streams requires careful planning and a solid understanding of investment principles, but the rewards can be substantial.
By diversifying your sources of passive income, you can achieve greater financial stability, reduce dependence on a single income source, and work towards financial independence.
Literacy communities
No man is an island, and teamwork makes the dream work. This popular saying emphasises the importance of not navigating your financial life alone.
While money might seem straightforward, achieving financial success requires a considerable level of financial intelligence. It is crucial to recognise that building financial literacy is an ongoing journey, not a destination.
One effective way to enhance your financial skills is by joining communities, whether free or paid where you can connect with like-minded individuals. These communities provide valuable opportunities to share knowledge, ask questions, and learn from others’ experiences.
Investing in financial literacy is a powerful way to secure your future financial freedom.
By participating in these communities, you can gain insights into various financial strategies, stay updated on market trends, and develop a disciplined approach to managing your finances.
