UTT – The Basic Need to Know of Financial Literacy

Photo by Jason Coudriet on Unsplash


OGWUIKE Clinton Obinna

Date Published

March 7, 2023



An already established economic principle is rooted in resource allocation and scale of preference. A large chunk of the population is below the poverty line and even those above, are constantly on the verge of crossing over. The theory of economic convergence conveys the gospel of “economic catch-up”, where poorer countries grow faster than rich countries. Although this theory is commonly associated with nations and macro outlooks, its digest can be applied to individuals at the micro and household level. It is such that financial enthusiasts apply this theory in spreading the message of Financial Literacy. 

Financial literacy is having the knowledge and skills necessary to make informed and effective decisions about one's financial resources. It is the “ABC” of managing scarce economic resources. Unfortunately, conventional academic curricula are yet to incorporate financial literacy into basic education systems. Only a few who take advanced studies in finance are exposed to the nitty-gritty of financial literacy. However, with the current economic situation – 63 percent of persons living in Nigeria (133 million people) are multidimensionally poor. Therefore, it has become imperative that the campaign for financial literacy is resuscitated across the different economic strata. 

Arguably, no one is without economic resources but more likely, many people do not effectively use the resources (money in this case) at their disposal. The ineffective use of economic resources is bound to negatively affect an individual’s economic prosperity, whereas financial literacy advances the individual’s resource management, allocation, and viability. Studies show that prosperity is assured in a household with at least a financially literate individual. This assurance may tarry but eventually culminates into sustainable measures and exposure for the household. 

The benefits of financial literacy to the individual become more evident over the long term. Specifically, the individual will be able to enjoy self-reliance and sustainability in their finances, higher resilience to economic shocks, and improved productivity. The campaign of financial literacy can be perceived as a crucial step towards poverty reduction and SDG 1 attainment. Here are three key steps to improve your financial literacy.

Understanding the difference Between Fixed and Variable Costs

Everyone has expenses that must be paid on a regular basis (fixed costs) and expenses that can be changed depending on the situation (variable costs). Fixed costs usually include things like rent, mortgages, and car payments that can't be avoided, while variable costs are things like food and entertainment that can change depending on the individual's economic situation. It's important to prioritize expenses based on need, with essential things like food taking priority over non-essentials like entertainment. People should be aware of the different types of costs and be mindful of how they allocate their resources to make sure that their needs are taken care of first.

The Principle of Having Three Times the Value of the Purchase

A principle that sufficiently curtails unnecessary and impulsive spending is the rule of purchasing a non-asset only if the individual can comfortably afford that same amount of goods or service three times over without encroaching into other priorities within his/her scale of preference. This rule may not apply to the purchase of an asset that may in any case be seen as an investment aimed at yielding returns. Simply put, any good, service, or set of goods not designed to bring in returns on investment should not be purchased if the individual is unable to afford it three times over. Although this rule points to frugality, it also doubles as a regulatory tool that can help cut down on unnecessary expenses, improving savings–disposal income, and developing the capacity to invest.

The 25 Percent Savings Rule

A common practice in Nigeria is “paying tithe”. The Christian community in Nigeria, marking a substantial proportion of the population, is often reminded of the importance of tithe payment – 10 percent of their income as a form of devotion and commitment to their faith. However, little is advised on the remaining 90 percent.  We observe high levels of compliance to paying tithe from Christian believers of various socioeconomic standing. This indicates that people can deploy good financial practices given the right motivation. The “25 percent savings rule” states that 25 percent of an individual’s disposable income (i.e., total income less tax) is set aside for savings targeted at investment purposes. This rule proposes a rigid and conservative step requiring individuals to radically set aside this percentage of their disposable income. In doing this, individuals are encouraged to lock away these savings in a not so easy to access savings account.


In conclusion, advanced studies recognize personal financial management, budgeting, and investing as the three basic foundations of financial literacy. The better-off in society tend to be more financially literate and enjoy the related benefits relative to their less-educated and less affluent counterparts. In any case, UTT simplifies the core of financial literacy and targets raising awareness on financial literacy to be more practicable and feasible in the real world. In understanding the variabilities of fixed and variable costs, the individual draws a scale of preference to meet day-to-day survivability targets. The individual is expected to understand his or her spending capacity and projections. However, to be on the safe side and avoid unnecessary expenses on scarce resources, the principle of having at least three times the worth of a good and service before purchase is advised. And lastly, adopting the 25 percent saving rule brings an individual personal financial awareness and sensitivity. This rule ensures that the individual does not miss potential investment opportunities during an economic boom and unforeseen expenses in the event of an economic meltdown.

Risk Warning: Trading leveraged products may not be suitable for all investors as they carry a degree of risk to your capital. Please ensure that you fully understand the risks involved, taking into account your investments objectives and level of experience, before trading, and if necessary seek independent advice. Read More Here-

Disclaimer: This information in this article is NOT investment advice. It is intended for information and entertainment purposes only.

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