Hedge: Protecting yourself from money risks 

By Tracy Rabi

To hedge means to reduce financial risk. In finance, a hedge is like a shield or protection for your money. It’s a way to make sure you don’t lose too much if something bad happens. Think of it like carrying an umbrella when you see dark clouds — you might not get wet if it rains because you’re prepared!

Imagine you have a lemonade stand. You sell lemonade for 1,000 shillings a day. But sometimes, it rains, and you can’t sell anything. To protect yourself, you decide to also sell hot chocolate when the weather is cold and rainy. That way, if it rains, you can still make money. Selling hot chocolate is your hedge — your way of protecting your business.

Let’s say you have saved your pocket money to buy toys. You hear that toy prices might go up soon. So, you decide to buy your toys now, before the prices change. Buying early is a way of hedging — protecting your money from higher prices later.

Grown-ups use hedges too! They might buy insurance for their cars or homes. If something bad happens, like an accident, the insurance helps pay for it, so they don’t lose all their money.

Farmers in Tanzania hedge by growing different crops. If maize prices drop, they still earn from beans or sunflowers. Investors hedge by spreading money across different businesses.

Even you can hedge! Saving money ensures you have funds for emergencies. Planning ahead protects you from future money troubles.

You can practise hedging by thinking ahead — like bringing an umbrella when it looks cloudy or saving extra money just in case you need it later. It’s like being a money superhero — always ready for whatever comes your way!

Smart hedging keeps your finances strong!

Tracy Rabi is a children's author and the founder of Kids Finance with Tracy and the Tanzania Youth Entrepreneurship Experience.