Cryptocurrencies: A Wise Investment?

Here at Children and Youth Finance International (CYFI), we see that the key to fighting poverty is for people to learn how to manage and handle money, to have the confidence, knowledge and capability to spend and earn responsibly, ensuring good financial health. This is particularly important for children and youth, so that they can make correct financial decisions from the start.

Good financial health involves more than controlling daily transactions. It is important to own investments as they provide long-term returns and savings that can cover unexpected expenses.

"Saving to cover unexpected expenses" sounds clear (and boringly necessary), but what about investments?

Nowadays, when thinking about investments, cryptocurrencies and their high return in the last years immediately come to mind. There are many stories of people who got rich quickly by betting on this novelty. Stories that encourage more and more people to enter this market. These stories are particularly appealing to a group of the population which see an opportunity to quickly make big bucks with their little investment potential, are used to instantaneous results and are more willing to take risks: young people. Moreover, cryptocurrencies have the natural appeal of being novel and innovative, and a sense of urgency is created around them: if you wait too long, the opportunity will pass, many people will have made a lot of money, but not you.

Should you close this web page and immediately open a wallet to invest in cryptocurrencies?

No. Cryptocurrencies are not a good investment to ensure your financial health. For all of the people that have made it big with a short-term get rich scheme, there are hundreds that have crashed and burned following the same strategy. Good investments must have medium- and long-term returns and, above all, have the security that allows for financial planning around them. Cryptocurrencies do not have this characteristic. Although some cryptocurrencies have more than doubled their value in one month, a loss of almost half of their value in the same period has also been documented. In addition, because they have only been on the market for a short time, estimating their medium- and long-term behavior is pure guesswork. Their unpredictable character makes it impossible to compute investment in cryptocurrencies that would enable financial planning. Furthermore, many people seem to think that cryptocurrencies are safe. In theory, this is true as they are anonymous and at the basic level, nothing identifies you with what you hold. However, when one uses third party traders, personal information is exchanged thus leading to the potential for identity theft or outright theft of your digital currency if the company is hacked. Another key problem has less to do with the technology and more with the human use thereof. Cryptocurrencies make use of a personal key, essentially a unique identifier that allows the network to accept and make transactions on your account. This key should never be stored on a device connected to the internet and furthermore, it is recommended that whenever conducting a transaction a VPN should be used. Most people can barely create a password for their email address that is considered "safe" let alone do all of these things. We need only look to the half billion stolen from Japanese based Coincheck exchange last year for strong warnings.

Financial planning is a crucial concept here. Saving and investing every month may sound much less sexy than getting rich within six months by investing in a new technology people do not yet know or understand. It may seem less attractive (especially for young people) than cryptocurrencies, which disregard traditional financial governing bodies, such as governments and banks. However, financial planning is the only method of investment which guarantees consistent financial health in the long-run.

So how CAN you ensure long-term financial stability and financial health? Sorry to disappoint and perhaps sound like your grandfather or a public service announcement, but it requires planning and hard work and a long-term investment horizon.

How CYFI helps you

We know financial planning can be a long and arduous process, with many external barriers and difficult decisions along the way. That is why CYFI advocates with your government for Economic Citizenship Education and carries out different initiatives:

  • Global Money Week is an annual financial awareness campaign created to inspire children and young people to learn about money matters, livelihoods, and entrepreneurship;
  • Ye! Community connects young entrepreneurs around the world and links them to various resources to support the growth of their enterprises;
  • The Global Inclusion Awards 2018 recognize and honor those who achieve greatness in furthering the Economic Citizenship of children and youth.

In several initiatives we partner with other relevant players to increase our reach and impact:

  • CYFI Global Summit 2018, hosted by the Banking Association South Africa (BASA) together with CYFI, is the major global summit focusing on youth economic citizenship, entrepreneurship, financial education, and financial inclusion for children and youth;
  • SchoolBank aims to economically empowerment of children and youth by providing them with access to appropriate banking products, economic citizenship education and practical skills for using a bank account. Local banks offering Child &Youth friendly banking products are engaged with local schools, under the supervision of the Ministry of Education and Central bank regulators, to provide such products through the school system.

There are several ways to participate in the system change, our collaborative process to create large-scale change. CYFI acts on many fronts for this because we believe that children and youth are the next generation of changemakers. They are tomorrow's business leaders, politicians, parents, teachers. They unlock their potential when they believe in themselves.

We hope to inspire others to join us.

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Saturday, 15 December 2018
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