Hyun Jung-hwan
Professor Department of International Trade
Dongguk University
For an ordinary university student, “Finance” is a quite difficult field to understand. However, all of us need to have a certain level of financial understanding, which is called financial literacy.Financial literacy, which can be defined as the ability to have and use the knowledge and skills necessary to manage one’s financial assets efficiently and reliably. How can you develop financial literacy?
First, you need to master basic financial knowledge, then understand how the financial market moves. The most important variable in the market is price. Therefore, you should focus on price variables such as interest rates and financial instrument prices to understand how the market works, noting the market forces that influence prices. It is useful to apply this exercise to the stock market, bond market, and loan market separately, because markets respond differently to a single economic event due to expectations. Expectations are formed based on the propensity and uncertainty of market participants, and understanding these expectations properly is the essence of the ability to read the market.
Second, you need to develop a sense of macro-finance. All fields of economics are divided into micro and macro, with micro being the analysis of a single market and macro being the understanding of how entire financial markets change. For example, Samsung Electronics’ stock price can fluctuate by the company’s invention of new technologies or announcement of new investment plans, but it can also fluctuate due to a spike in interest rates or a sharp drop in exchange rates. The former is the microscopic factor and the latter is the macroscopic factor. These macro factors are very important because they affect not only Samsung Electronics’ stock price, but also the stock prices of other companies and all financial markets. The key to developing an understanding of macro-finance is how macroeconomic variables such as money supply, interest rates, exchange rates, and prices move and how they relate to each other.
Next, you need to have a good understanding of your financial personality. If you are a fairly conservative person, aggressive investing is out of the question. Then you do not need to know about financial instruments that have the potential to lose money, such as derivatives. However, if you are looking for significantly higher returns and want to make money through investment techniques, you should study the stock market, derivatives market, etc. instead of deposits and loans. There are many different types of finance, so the first thing you need to do is to know what kind of person you are.
Finally, you need to understand financial authorities and financial policies. Financial markets are driven by internal forces, but they are also influenced by forces outside the market. The most powerful external market forces are the financial policies of financial authorities (monetary policy, financial regulation, etc.). In particular, financial regulation is an important part of financial policy. How will the crypto market develop in the future? The U.S. Securities and Exchange Commission (SEC) has approved a spot ETF based on non-tokens, but will it be approved in Korea? How will the token securities market develop in the future? Financial regulation is the answer to these questions.
Thus, how can we acquire such financial knowledge and related skills? The worst way is to acquire fragmented knowledge very distractingly, and the best way is to read textbooks such as monetary and financial theory, and economics. It is important to have a balanced understanding of all aspects of finance. Therefore, instead of watching financial YouTube videos or reading liberal arts books, I recommend reading financial textbooks and classics.