MONEY matters

Mark Zaifman's thoughts on money, global economic trends and politics

Financial Illiteracy is Not an Option

Mark Zaifman   |    Mon, Feb 27, 2012 @ 10:48 AM
 financial illiteracy

Helping people understand personal finance and then make good financial decisions is what keeps me in business.

I am of the ‘no shame-no blame’ mindset when it comes to financial literacy. Many times when I talk with new clients, I find myself saying the same thing over and over, “It’s not your fault you never learned this money stuff – but now is the time you can begin learning.” 

How is it expected that people can make good financial decisions when we are being taught the exact opposite?  Prior to the crash in 2008, credit card companies were happy to give cards to kids getting ready to enter college. These students had minimal or no means to pay off the charges, but that didn’t stop the banks from increasing credit lines to allow them to spend more. That’s the first financial lesson they learned as adults. 

Insofar as the subprime mortgage fiasco - buying a house, or several houses, was as easy as signing your name to the mortgage docs. Remodeling a perfectly good house, was even easier with the way the banks were throwing home equity lines at homeowners. So to be fair, I’m not letting people off the hook – we all got excited about having that beautiful gourmet kitchen with top of the line appliances – which really is an act of greed in terms of wanting more, but who actually thought about paying for it when you could just add it on to your existing mortgage?  We were partners in the scam – but I wouldn’t say we were equal partners. Banks and lenders had no right to take advantage of us, the government had no right to allow it and we should have known it was too good to be true.   But the fact was that no one knew the consequence of adding to a mortgage by borrowing more money while not paying down the principal.

It’s past time to increase our financial literacy. In particular, if you are approaching retirement, you really need to get your act together – now. The last thing you need is to have no savings, high debt and be in your 50’s. If you want a safe, secure and comfortable retirement – the numbers just will not add up unless you take financial literacy seriously.

Remember the YOYO theory – You Are On Your Own. YOU need to learn to manage your pension, YOU need to learn about funding your 401(k) properly, YOU need to know when to start collecting social security and YOU need to start making good financial decisions.

We are a culture of immediate gratification – and if we don’t change this mindset, we’ll continue to be financially illiterate. Parents have a responsibility to teach their children the basics about money – which means they themselves need to understand how it all works. They need to have a (real) budget and stick to it. They need to understand spending and saving so they can teach their kids the value and importance of money. There is an abundance of good financial websites and to start you off, Vanguard has an article on teaching your kids about money.

And my perennial favorite  if you’re just beginning the journey of financial empowerment or need a refresher course is “Personal Finance for Dummies”, written by Eric Tyson.

It really doesn’t matter where or how you begin the process of increasing your financial intelligence. As the Nike slogan says - Just do it!

become financially literate

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