Financial Literacy in 10 Easy Points
So what is the state of financial literacy in our country? To put it bluntly, we are illiterate when it comes to money. If our literacy rate (our ability to read) was as low as our financial literacy, we would be a third world country. And that is really sad, because financial literacy is not complicated, so we must not be doing a good enough job educating society. In fact, I like to point out that financial literacy is easy, relevant and fun.
Financial Literacy is Easy
Financial literacy is so simple that it can almost be boiled down to a series of bumper stickers. While I will eventually link each of these principles to articles on the subject (check back over the next few weeks), for now it is about understanding a few basic principles such as:
1. Spend less than you earn
2. Invest money for the future
3. Have a rainy day fund
4. Pay more than the minimum on your credit cards
5. Remember how those who are helping you are being compensated
6. Don’t share personal information or pay unless you initiate the contact
7. Debt takes away your choices
8. Insurance is about the big stuff, not the everyday inconveniences
9. You earn your money in pre-tax dollars but you spend them in post-tax dollars
10. Savings is about protecting your money, investing is about growing it
Everything else is just noise meant to confuse us to take advantage of us. Tax laws are complicated, but a $50 Tax prep software is not. Investments can be complicated, but an Index Mutual Fund through your employer is not. Budgeting seems complicated, but setting up one account for your bills and a separate account for your everyday spending is easy. So our financial industry has taken very easy concepts and complicated them to charge us more. Just go back to the basics.
Financial Literacy is Relevant
Total U.S. consumer debt is over $11 trillion! That’s not what our government has borrowed (that is over $18 trillion), but that is what WE as consumers have borrowed. $700 billion of that is on credit cards and over $1 trillion is student debt. We are borrowing that much money to get educated but we clearly aren’t being educated on how not to borrow!
So money affects everybody’s life… every day. Unlike many college courses where students can’t see the direct relationship between their life today and the topic, financial literacy and personal finance is exactly about them as individuals. Buying cars, renting, understanding credit scores and even relationships and money. These are all topics that have meaning right now in their lives.
Financial Literacy is Fun
I think talking about money and the ways I have messed up in the past is great. I tell my wife there are no mistakes with money any more, only future classroom stories. Because the topic is so relevant and people seem to love hearing about my mistakes for some reason, talking about money is like therapy for me. Plus, when your audience is engaged and laughing it really energizes the room. You want them nodding in agreement not nodding off. What can be more fun that realizing how to easily make your money go further while thinking about it less and while building wealth for your future?
If you are taking personal finance and are bored, then you are in the wrong course or seminar. If you are teaching personal finance and are boring, then you are not doing it right. Students should be laughing and learning when it comes to money.
Make it Happen
I read Men’s Health magazine. In fact I read a few articles again and again last month but still didn’t lose a single pound. Financial Literacy is kind of like that. Knowledge is great, but action equals results. Money is about behavior, not about math. So financial literacy is the first real step towards financial freedom. The next step is taking action. And it only takes a few small actions to change the direction of your future.