Why Financial Literacy Has Become a Lifestyle Skill in London

London is the most expensive city in the UK. Living in the capital comes with a lot of perks, like the rich cultural heritage and career opportunities. However, the high cost of living also means residents need to be very financially savvy. This article explores why financial literacy is an essential lifestyle skill and key money management concepts to learn.

Financial Literacy

The London School of Business and Finance defines financial literacy as understanding how to handle, multiply, and save money. From the moment you get your paycheque or cash in profit from your business, to when you sort out your everyday bills, and to when you decide what you do with the remaining cash, your level of financial literacy guides every single action you take.

The more developed your financial literacy is, the better you are at handling money and making it work for you. With 39% of adults (around 20.3 million) reporting that they do not feel confident about managing their money, there is a significant gap that must be addressed in improving financial literacy. And if you’re living in London, managing your money well can make a huge difference in the quality of your daily life.

Why financial literacy is a key lifestyle skill in London

Living in London means having to contend with high rent or significant home maintenance costs, rising energy prices, and the general effects of inflation. If you want to live your best life, enjoy the moment, and be prepared to keep the fun going after you retire or stop working actively, then financial literacy is a skill you must not ignore. Here are four major reasons why it matters:

1.   It helps you spend more efficiently

Being money smart does not deprive you of the joy of spending on what you love; it, however, ensures you spend reasonably. Budgeting is one of the key pillars of financial literacy, and it teaches you how to approach deciding what to do with your income. It simply involves deciding how much to put towards savings and investments, how much to spend and on what, and how much to reserve for gifts or charitable giving. Once you’ve allocated money for essential expenses, it is advisable to prioritise savings or clearing outstanding debts first, before considering any significantly costly leisure or lifestyle spending.

2.   It teaches you how to multiply money

A high level of financial literacy is the key difference between those who know how to make their money grow and those who do not. And it all boils down to investing. Investing can sometimes be challenging, and you might prefer to leave this part to the experts, professional financial advisers and fund managers. However, that does not mean you should not understand the basics. If you plan on buying companies or their shares, you need to understand investing concepts such as portfolio diversification and valuation ratios, like the P/E Ratio (Price-to-Earnings), which helps you decide whether a company is worth investing in and is likely to be profitable. Investing in stocks is not the only avenue for Londoners to make their money work for them. With how advanced the world is now, making money passively is possible through online trading of gold and commodities, spread betting, and investing in digital assets like crypto and bonds. Financial literacy gives you insight into how to handle money and various ways to make it work for you.

3.   It helps you leverage borrowing and clear debt

Robert Kiyosaki is one of the biggest proponents of using debt positively. You may have seen YouTube videos explaining how the ultra-wealthy use their shares or assets as leverage to borrow from banks. This is not borrowing money just to splurge on yachts and vacations, it is more about using money as leverage to make more money. You may have borrowed from a bank to finance your business, get through university, or for some other reason. Or you may be considering borrowing for the same purposes. Financial literacy helps by providing the knowledge you need to understand interest rates, compound interest, the time value of money, payment periods, and loan structures. When you understand how borrowing works and can determine the limit you should take to ensure repayment does not drain you, you set yourself up for a stress-free financial life.

4. It reduces the complexities around taxes

Filing taxes can be stressful, and if you do not do it correctly, you may face HMRC penalties. Building financial literacy around taxation rules helps you avoid situations that could put a strain on your finances. Start by learning how income taxes work and the different types in the UK. Income tax varies depending on whether it comes from business, employment, rental properties, inheritance, lottery winnings, and so on. Professional chartered accountants can lift the burden of filing your taxes by handling everything from bookkeeping to self-assessment. Alternatively, you can work with a tax adviser, especially if you want to reduce what you owe as much as possible within the law. These finance professionals can make the right distinctions and spot loopholes you may not notice.

5.   It empowers you to protect and preserve your money effectively

Whether you aim to FIRE and travel the world, or the world is already at your fingertips and you have considerable wealth, you still have the responsibility of keeping your money safe. Financial security combines budgeting, saving, and investing with key capital preservation skills. Key financial literacy tips, such as how to spot phishing links or scam emails, can make the difference between becoming a victim of fraud or avoiding it entirely. Financial literacy also teaches you how to maintain and even grow the value of your money when inflation is rising. Finally, you build up your money sense when you learn how to set financial goals that are solid and strong enough to ensure stability in the future.

The Foundation of Financial Well-being

Financial literacy is key to living in financial peace in the present while also preparing for long-term financial security. It covers important concepts such as budgeting, saving, investing, and personal finance management. Maintaining a good level of financial literacy is essential for avoiding bad debt and making smart, informed decisions.