How poor financial literacy can expose young people to scams

The world of finance is evolving rapidly, with technological advancements occurring at a pace unimaginable only a decade ago.

As we marvel at emerging trends such as blockchain and artificial intelligence (AI), and embrace digital transformation, many of us tend to overlook a critical issue: the dire state of financial literacy.

This is particularly true for the younger generations. Even though they are captivated by visions of financial freedom, their dreams may remain out of reach without adequate financial education.

Their insufficient knowledge about how finances work, whether in personal finance or trading and investing, acts as a significant barrier to sound financial planning and wealth management.

This lack of understanding is also reflected in their engagement levels with the markets, resulting in a sea of missed opportunities and, worse, opens them up to financial scams.

I’ve been working in finance for about three decades now and my observations are clear: many individuals embarking on their investment journeys today tend to lack the fundamental knowledge required to make informed financial decisions.

And many become victim to get-rich-quick schemes promising unrealistic returns, seemingly leading to luxury lifestyles featuring fancy cars, five-star holidays and private jets.

Only 35 per cent of men and 30 per cent of women globally are financially literate, while the UAE’s financial literacy rate is estimated at 38 per cent, according to Standard & Poor’s Global Financial Literacy Survey.

A 2019 UAE financial literacy survey by Visa found that 43 per cent of respondents aged 16 to 24 felt unready to manage their own money, while 53 per cent said institutions didn't educate them enough to manage their finances.

The consequences can be dire, with reputations and financial security hanging in the balance.

Educational initiatives are crucial in promoting proper financial education to help individuals make informed decisions about investing and trading in the markets.

After all, an average investor requires a comprehensive understanding of why and how to invest.

Financial knowledge gaps expose investors to risks, particularly in investment products like individual stocks, commodities or cryptocurrencies.

It doesn’t take long on social platforms to be targeted by brokers promoting super risky trading environments, promises of magical trading and investing systems that turn you into a market wizard, or “prop” trading programmes, which do nothing but take your money on a monthly basis while promising to make you a profitable day trader.

Without proper knowledge of money management, individuals fall prey to financial scams, accumulate debt or make poor investment decisions, jeopardising their future financial well-being.

In finance, short-term mistakes lead to long-term consequences. This is especially important in a place like the UAE, where the population consists mostly of expats who need to pay particular attention to secure their retirement due to the lack of a universal pension system.

In this interconnected world, a well-informed and educated trading and investing community is paramount. Providing individuals with the necessary tools and resources to make informed decisions is essential.

Access to quality educational resources and accurate and up-to-date information enables traders and investors to navigate the complexities of the global and regional financial markets with confidence.

User-friendly technology and ultra-low cost, efficient investing and trading services are also key.

With real-world education built into trading and investing apps, information is ready at investors’ fingertips, ensuring everyone has the tools they need to achieve financial success.

Muhammad Rasoul is chief executive of neo-broker amana