Financial literacy is one of the strongest tools for long-term success. When you understand how money works—how to save it, grow it, and protect it—you make better decisions and avoid costly mistakes. This guide explains essential investment concepts in clear terms so beginners can start their journey with confidence.
What Financial Literacy Really Means
Financial literacy is the ability to manage your money wisely. It involves four key skills:
1. Planning how to earn, save, and spend money
2. Understanding investments
3. Managing risk
4. Making long-term decisions that support financial goals
When you understand these basics, you can create a stable financial foundation and gradually build wealth.
1. Equities (Shares): Owning a Piece of a Company
Equities, also called shares or stocks, represent partial ownership in a company. When you buy shares, you become a shareholder and benefit when the company performs well.
How you can make money from shares
1. Capital appreciation: the share price increases over time
2. Dividends: the company pays part of its profit to shareholders
A simple example
If you buy 10 shares at ₦100 each:
• Total cost = 10 × ₦100 = ₦1,000
If the price rises to ₦120:
• New value = 10 × ₦120 = ₦1,200
• Capital gain = ₦1,200 − ₦1,000 = ₦200
If the company pays ₦5 dividend per share:
• Dividend = 10 × ₦5 = ₦50
Total return = capital gain + dividends.
2. The Nigerian Stock Market (NGX)
Nigeria’s stock market is operated by the Nigerian Exchange Group (NGX Group). Companies list their shares on the exchange to raise capital, and investors buy and sell those shares through licensed stockbrokers.
Share prices move based on:
• Company performance
• Market demand
• Economic conditions
• Investor expectations
The NGX provides transparency, regulation, and a safe environment for trading.
3. Where and How Trading Happens
Trading in Nigeria happens through:
• The NGX’s electronic platform (the main trading system)
• Licensed brokerage apps and firms
• OTC markets for securities not listed on the main exchange
Most investors today trade electronically through mobile apps or online platforms.
4. Dividends: Getting Paid From Company Profits
Dividends are payouts companies make to shareholders from their profits.
Good dividend-paying companies can provide steady income, but high yields alone do not guarantee a healthy company. Always check whether the dividend is sustainable.
5. Mutual Funds: Professional Management for Beginners
Mutual funds pool money from many investors and invest in a mix of assets such as stocks, bonds, or money market instruments.
Benefits include:
• Professional management
• Diversification
• Lower entry amounts
• Less stress than selecting individual shares
However, mutual funds charge management fees that reduce returns, so always review the fund’s fee structure and performance history.
6. ETFs: Low-Cost, Diversified Funds That Trade Like Shares
Exchange-Traded Funds (ETFs) combine the features of mutual funds and stocks. They hold a basket of assets but trade on the exchange throughout the day.
Advantages:
• Lower fees than many mutual funds
• Easy diversification
• Transparent holdings
Because ETFs trade like shares, you also encounter:
• Bid/ask spreads
• Brokerage transaction costs
Many investors use ETFs to build long-term, diversified portfolios.
7. CSCS: The System That Protects Your Shares
The Central Securities Clearing System (CSCS) is the institution that ensures all share transactions in Nigeria are settled and properly recorded.
When you buy shares:
• CSCS confirms the transaction
• Your shares are stored electronically (called “dematerialization”)
• Your name is recorded as the owner
CSCS also provides account statements and updates through your broker.
How to Start Investing in Nigeria (Simple Steps)
1. Set your financial goals
Decide what you want: retirement savings, education funds, or long-term wealth.
2. Choose a licensed stockbroker or investment platform
Ensure they are registered with the Securities and Exchange Commission (SEC).
3. Open and fund your account
You’ll be assigned a CSCS account where your investments are held.
4. Pick your investment type
• Shares
• Mutual funds
• ETFs
• A mix of all three
5. Start small and stay consistent
The best investment habit is consistency, not size.
6. Review your portfolio from time to time
Adjust your investments as your goals and risk tolerance evolve.
Common Money Myths to Avoid
Myth 1: You need a lot of money to start investing.
Truth: Many mutual funds and investment platforms allow beginners to start small.
Myth 2: Only experts can invest successfully.
Truth: Long-term investing in diversified funds often beats frequent trading.
Myth 3: Dividends always mean a company is strong.
Truth: Dividends matter, but a company’s financial health matters more.
Myth 4: All investment fees are tiny.
Truth: Brokerage and fund fees vary. Always check costs before investing.
Financial literacy is a journey, not a one-time lesson. When you understand how shares, funds, and market systems work, you take control of your financial future. Start today with a small amount, stay patient, stay informed, and watch your wealth grow over time.
Mohammed Lawal.
