FGN Bonds: Why Parents Should Teach Children Financial Literacy
The first rule is, don’t save it, invest it. Cash is the king in the marketplaces.
It does not have to be Naira and Kobo though, there are cash and cash equivalent assets.
If you are still among those that love to have millions, or billions in savings accounts, congratulations but that means you are compound financial illiterate.
I have seen people that went to school, yet they are committing this economic blunder arrogantly.
A professor once told me that he was saving N500,000 monthly from his sources of income to effect a long term project.
Where? In his bank accounts! I screamed, what?! Don’t be surprise when your Uncle that is an Accountant do the same.
Many professionals don’t relate with certain movements or school of thoughts, anymore.
They don`t even teach it to their wards.
So, if daddies and mummies don`t know, there is 50:50 chance that the children may not know.
What I have discovered so far is that children learn from what their parents tell them or often talk about.
Recently, one of my colleagues at MarketForces Africa, Anthony Persuader said, financial literacy should be taught in our schools as core course.
Hey, it cannot be taught because there other sides of life that others have to be specialised but teaching economics could beam search light into thinking processes of people.
Ultimately, all of us would meet at market where goods and services are exchange for cash. Trust the market economy, it determines who gets what.
Investing case in FGN Savings Bond
It doesn`t mean you are taking risk if you put your money in savings bond. It is just that you want to be a bit discipline.
FGN Savings bond is government borrowing from you. Hippie! You are lender-investor if you have government securities in your portfolio.
If you keep your money with your banks, it is save.
If you use the same amount to buy government financial securities, it is also save.
If there is free cash, and you cannot afford to lose a dime, then do savings bond!
The different is, the return on the amount you save would be higher if the money is in the government securities.
This is lowest possible risk everybody should take, given the inflationary trend, then your purchasing power would be a bit covered.
What is all the fuss about this bond really?
Federal Government of Nigeria`s Savings bond is a short term financial instrument you can use to cushion the effect of inflation on your income.
It is not really an investment that covers long term horizon. Let me explain.
As prices of goods changes in the market, we get poorer or richer depending on the areas where the swing is directed.
Many of us have fixed sources of income and we buy things on variable basis in the market.
So, how do we make up for upward change in prices when our income is fixed for the period?
Without protection, quantity demand must be adjusted downward. That is, we won`t be able to buy more as we used to.
Financial literacy is not specialty of great many people here. It is understandable.
In a situation where great numbers of people are living below $2/day, it is unlikely to see so much interest in savings and investment.
Some would say deposits in the banks are savings.
Nah! Most people that deposited their monies in banks are not saving in the real sense of it.
They just want their money protected. On the average, many people make withdrawals more than 15 times before month end.
In that sense, it is clear that such person intention is not to save, but to protect the money from being stolen.
On the other hands, there are many people that keep more than enough in their banks.
They don’t really have use for it in the short to medium term.
Sometimes, bulky funds that would have been invested lie low on savings account with quite insignificant interest amount per month.
Some corporate accountants also don’t know this. If you don’t, now you know.
If a company has an inflow of cash, or perhaps some amount in cash/bank balances that it intends not to use in the short to medium term (If any, but not impossible), the right thing is to pick short term instruments, having systematically provided for its working capital.
Treasury Bills for 90-days, 180-days, Commercial papers or even Government bonds are there. It is all about timing.
Suppose a company has surplus cash, it should be invested – in an instrument that can be converted in short term.
If you have relationship with your bank, the instrument can be used in an asset backed up loans offering.
It is all about expertise, ability to analyse trend and estimate properly with time as benchmark.
Unfortunately, many people keep more in their savings account. The amount that can be invested.
It is an economic blunder, but you can’t give what you don’t have. They don’t know. Those that know don’t tell them.
Or if they were ever told, they were never cleared. If they were ever cleared, they are simply just financial illiterate!
Use FGN Savings to teach your children financial literacy
It is important for every family. FG Savings is always available. You may likely see this offer every first week in each month.
It usually goes for N1000 per unit subject to a minimum subscription of N5 000 and in multiples of N1000 thereafter, subject to a maximum subscription of N50,000,000.
If you invest in this, though it is not really an investment in the real sense of it, I see it as a better saving window.
You want to know why? Because it has annual rate quoted at 11.195% for 2-years bond and 12.195% for 3-years bond.
If I balance this with inflation rate, let’s say 11%, then your net return is just to “hold body”.
As a bondholder in that sense, your interest income is paid quarterly directly into bond holder’s account.
Wait, let’s be clearer. The rate quoted is per annum.
So, when a quarterly interest income is paid, we are talking about annual rate divided by four (Four quarters make a year)
The Bond is acceptable as collateral for loans by banks and can be sold for cash in the secondary market before maturity and good for savings towards retirement, marriage, school fees, house projects, etc.
If you put fund in FG Savings, you haven’t taken any risk really.
The only underlie risk you take is there is World War 3 or global recession and financial system crash.
FGN Bonds: Why Parents Should Teach Children Financial Literacy