#TMOC5: Staying Financially Intelligent as a Teenager

This is a compilation of the third session in TMO Conversations 5.0. It was held by Edna Jennifer, MSc. Finance and Investment & Personal Finance Enthusiast, in a Tweet Chat with us. Feel free to share with others.

Tweet chat with Edna Jennifer

Q1: What Is Financial Intelligence?

Financial intelligence as personal or contextual (for organizations) is the understanding of how to make, keep, grow, improve and manage one’s finances to meet set goals and desires.

That’s quite profound.

Q2: Why should anyone, especially being a teenager, strive to be financially intelligent? Is growing and managing of finances a skillset required in adults alone? 

We all need money,  and we would all like to have more money. The moment you start getting money whether in the form of gifts, salary, business revenue etc, you start to use the financial intelligence you have. 

Does this mean you should wait before you start earning money to become financially intelligent? No. You do not wait till the day of battle before you start learning how to shoot your gun. You also don’t wait till the day of the Olympics before you start training. If you do this,

Your best bet is to build the intelligence even before you need it so when the need arises, you already have the knowledge and would make less mistakes.

Q3: How exactly do I start the journey towards financial intelligence?

By the time we are teenagers, we’ve all gained some level of financial intelligence from our families, schools, society etc. and because of this I don’t think there’s a universal starting point where everyone should begin from. And this is a good thing.

The first step then would be to figure what exactly you know or think it is to be financially intelligent. What do you think about saving? Investing? Borrowing? Do you think they’re important? Do you think they’re good or bad? How have you gone about these things in the past? How have people around you done or spoken about these things? Do a bit of “soul searching” and internal recollection of what you know.

Then search for materials: videos, articles, books, etc. and people who talk about the things you already know in detail.

I recommend this because it’s easier to start from the things you know and build from there up. This is a tried and proven method you see in schools. It’s why you are reminded of 1+1 before you do 2+3+5

Start from where you are. Find materials that explain what you know and a bit more in simple terms. In those materials, you’ll notice that there would be 1 or 2 new concepts. Explore those new concepts and continue the cycle.

Before you know it, you’ve gotten exposed to more complex things that you wouldn’t have understood if you just started out with the complex things.

Q4: When trying to study finance…

I often come across terms like  ‘investments’, ‘assets’, ‘liability’ and ‘liquidity’, but they bring to mind million-dollar trades way out of my reach. How do I relate those principles and terms to my finances to avoid learning principles that I cannot relate to or put into practice?

I can relate to this well. Personally, whenever I learn, I try to relate what I’ve learnt to what I know, what I’m used to or what I can relate with.

I say this to people I talk to often, the basics of finance are simple. If you understand the basics, you can apply them to your 10s or 100s of naira and to billions of dollars.

So to the four terms:

✓ An asset is simply something you own that can bring you money in the future. If you use your laptop to work and it earns you money, it’s an asset. If you are a model and you take pictures for magazines, then your body is an asset. We often hear the quote “your mind is your greatest ASSET”. What does this mean? It means that your mind is the one thing that you own and can bring you the greatest amount of money in the future.

✓ A liability is the opposite of an asset. A liability is something that you own that will take money from you in the future. If you take a loan from a bank, that’s a liability because it’d take money from you in the future to pay back that loan.

Note: The definition of assets or liabilities depend on what that thing can bring or take from you and not what that thing is in itself. What does this mean? This means that 1 thing can be an asset to you and a liability to another person. 

Two examples:

If a person owns a car, uses the car as a taxi/Uber and that car brings in or can bring in more money than what it cost to buy and service the car, then that car is an asset. On the other hand, if that car costs so much money to maintain that it’d save you money if you sold the car and took the bus or trekked, then that car is a liability.

On another hand, when you borrow from someone, or a bank, the loan is a liability to you because you have to pay it back and with interest. But, to the bank/lender, it’s an asset because that loan will bring them money in the future.

✓ An investment is somewhat similar to an asset in that, an investment is something you own that can give you profit/returns in the future

✓ Liquidity is simply how quickly you can convert a thing to cash. If you can easily sell something you own to get cash, then that book can be said to be liquid. If you cannot easily sell your parent’s land, than that’s not liquid/illiquid

Q5: How do I stay financially intelligent

and ensure that I don’t fall off the wagon at any point on this journey?

First thing to know to remain financially intelligent is NEVER FORGET THE BASICS. As you advance in your financial journey, and you start learning about the more complex Finance stuff, there is a tendency to want to ignore the basics because they may seem “too simple”. But like I said earlier, Finance (Personal Finance) is just a set of really basic and simple principles.

If you understand those principles, you can understand any other thing there is in personal finance and more importantly, all the seemingly complex things you might/would learn later on build on those basic principles.

I was listening to “The Richest Man in Babylon by Ben C Carson” recently; If you have ever listened to any finance lecture or something, they often mention this book and it’s very popular. I had heard of this book several times in my University days but I never got around to reading it (probably because the book is quite long and big and expensive to buy) but that’s just by the way.

When I finished listening to the book, I realized that, while the things covered in the book are excellent Finance tips and lessons, I already knew all these because I know and talk about the basics of Personal Finance every day. So, never forget the basics, everything “complex” come from the basics.

Second is to be aware of a phenomenon of “LIFESTYLE INFLATION”. The saying “more money more problems” comes here. While I don’t believe you necessarily get more problems when you get more money, there is some truth to the saying.

The more money you get, the more things you see and want to get.

Remember the basic finance principles that you’ve already known and try not to throw your frugality to the wind and spend lavishly as you begin to earn more. Retain the good financial principles you had when you had 100,000 when you get to 10m.

Expand on the application of those principles but as I said, those principles don’t really change.

Third is to keep learning. This feels funny and against the first point but it’s really not. Though the basics never really change, the application might change. For example, I was listening to this book “The Way to Wealth by Benjamin Franklin” earlier this year and he was talking about some Finance concepts that although made sense in the times he was describing, may not apply the same way in our times. So, while the principles remain the same, know that the applications might differ. Principles are universal but their application is contextual. Keep learning about different contexts.

• This is an addendum to 3. To learn, you do not necessarily need to read many books or spend money you don’t have if you are not opportune to be able to do so. Like I said, before I read The Richest Man in Babylon, I already knew the principles therein. So, if you’re not a reader, you can do YouTube videos or shorter articles or Twitter threads like mine etc. Also, a lot of personal finance is really just common sense and math. If you can sit for yourself and think about it and run the numbers, you’ll get it.

Fourth is to know that you do not need to be rich or wait till you get rich before applying the things that you have learnt. If you wait till you get rich before you start implementing things like saving, investing etc, you may never start. Because the truth is, rich is not a destination. What would you say is big money to you now? What would you define as rich? Do you know the richest people in the world are still out hustling for more wealth? You can start where you are

Also, compound interest favours time and consistency more than the amount at your disposal so never look down on yourself and be unwilling to start

Fifth is to Never let greed be the ruling motivation behind taking a personal finance decision. This could make you lose a lot of money. Don’t take on too much risk. As a young person, you need to build up your risk appetite. Start small and build it up.

If you take too much risk as a young person and lose a lot of money in the process, you might not be able to pick yourself up and give investing another try.

Sixth is to take calculated risks. In Finance, you are taught that there are 3 kinds of risk appetites: risk-averse, balanced and risk-takers. The best position to be with regards to the most money to be made at minimum risk is to be balanced. Don’t be afraid to take risks but do the calculation before taking those risks.

Seventh is to use financial intelligence and frugality as a means to an end. There is no point in saving/investing all your life and never enjoying your money at all.

Financial intelligence is not the goal. Financial freedom is the goal.

Edna JenNifer

We hope you learnt something from this. Share with others and don’t keep the knowledge to yourself. There are other sessions from day 1 and 2 and you can follow the #TMOC tag on our site to catch up.


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