20 January 2023

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Financial education: the tool to grow capital

Luigi Campopiano

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Financial education is essential to face the new globalized world in which capital has become the only means of support to everything inherent in the sphere that surrounds the life of each of us. This type of education is required, and financial consequences are connected to our level of knowledge of knowing how to administer, defend and increase assets.

In Italy, this subject is quite neglected. I consider this to be a serious shortcoming, especially in light of the how things can change so quickly over time. But it is also a shortcoming because having a clear picture of how to manage one's money helps to avoid decisions, and consequent actions, which could put a person in critical situations from which it isn't easy to get out. 

For lesser amounts, specific and in-depth knowledge is not required but only logic and common sense. But when we start talking about savings, a minimum of insight is necessary to understand reasoning based on our pockets, which is the optimal strategy to protect and seek to grow our capital. It is useful to analyze the main spaces and tools at our disposal to avoid maintaining capital passively and make it dynamic by putting parameters around the choices to our risk ‘appetite.’

The spaces are the financial markets through which the capital of hundreds of millions of actors move daily. The markets are like routes on which the drivers of the various means move to reach a goal starting from a pre-established point, and financial instruments are the means we use to reach the goal. Even the communication routes involve risks connected to the means used, the road to be traveled, and the circumstances and conditions we travel.

We can lower risk levels because that helps us to prevent and predict what awaits us unless we turn to a consultant or manager who we pay to achieve our goals and to whom we entrust the choices. If a person goes that route, the consultant will follow the guidelines of how much you are willing to risk, or if you are not willing to risk at all. 

Instruments have been created to ensure that the world of finance is in step with the times and meets the needs for volatility, timing and speed that the digital age requires. This includes shares, bonds, mutual funds, wealth management, derivatives, options, ETFs and ETCs, and other more sophisticated forms.

All are regulated by the famous law of supply and demand, which determines prices and which, in the current reality, is influenced by events of various kinds which push the markets in one direction rather than another. Of course, some rules regulate the markets and that, over time, have become increasingly stringent to avoid the great disasters we have witnessed during the eras of the so-called wild financial libertinism. That’s not to be confused with speculation, which is not at all a negative concept as it is a thought process aimed at profit.