Steve Martin said, “I love money. I love everything about it. I bought some pretty good stuff. Got me a $300 pair of socks. Got a fur sink. An electric dog polisher. A gasoline powered turtleneck sweater. And, of course, I bought some dumb stuff, too.”
Will Rogers observed, “Too many people spend money they haven't earned, to buy things they don't want, to impress people that they don't like.”
When it comes to financial success and independence it’s the dumb stuff that sinks us, the cascading results of what we do with money and what we fail to do. To say there’s a financial literacy challenge in this country is an understatement.
Financial literacy is the ability to manage one’s personal finances in an efficient goals-based matter. It includes decisions about paying for college, budgeting, investing, insurance, tax planning, credit management, buying a home, retirement planning, etc. A recent column focused on the student debt crisis. We have bright educated people who fail to fully grasp the impact of variable and rising interest rates, basic budgeting priorities, the credit-debt roller coaster.
William (Bill) Earle was an American proponent of existentialism, a philosophical theory emphasizing the existence of the individual person as a free and responsible agent determining their own development through acts of the will. He wisely observed, “If your outgo exceeds your income, your upkeep will be your downfall.” Bookmark that under “Financial Literacy 101.”
A 2017 Federal Reserve survey indicated that 40 percent of adults surveyed would not be able to cover an unexpected bill of $400 with cash. Among those with retirement savings, less than 40 percent feel they are on track to finance their golden years; 25 percent have saved nothing whatsoever. A recent Career Builder survey indicated that 78 percent of American workers are living paycheck to paycheck. A 2017 study from the American Psychological Association reveals money as the second leading source of stress in the U. S.
In the Stone Age before credit cards, people actually carried cash. When you peeled off dollar bills or wrote a check, you felt a certain pain, especially for larger transactions. As a kid I remember feeling like King of the Hill having a $100 bill in my wallet. It killed me to surrender it to get change! No more, kids. Just swipe a piece of plastic or phone, and, voilà, that spiffy electric dog polisher is yours! Bad money habits start young. Parents take note.
At one time high school boys took shop, girls took home economics. Basic budgeting and household management skills were taught in home economics, seed corn for financial planning courses now taught in myriad universities and colleges. But “knowing” is not “doing.” Texas Tech University, Lubbock, Texas, teaches a course, “Life, Love, and Money.” The class first focuses on the student’s biggest investment—themselves. Four (or more) years of college, time plus money, “then they finish and have no idea how to market this huge investment. Often graduates end up underemployed or going to graduate school for additional credentials.” Developing yourself as a human capital asset is a first step.
“Love” refers to the number one cause of divorce in America—money issues. Texas Tech professor Sandra Houston asks students, “If I offered you an investment with a 50 percent risk of failure, would you take it? Most people would say, ‘no way,' yet this is the divorce risk people face when getting married.” Texas Tech aims “to give students tools needed to decrease their ‘investment risk’ (chance of divorce) and improve their ‘return on investment’ (have a more rewarding relationship).”
“Money,” the third element of the course, deals with attitudes toward money. Spender or saver? Risk taker or risk averse? You can see how having a partner in life with diametrically different attitudes toward money creates family insecurity and disharmony, conflicts that rub off on children. Do you talk to your kids about money? What example is being set?
A 2018 survey by Council for Economic Education showed that K-12 students are not receiving adequate tools and training to make informed financial decisions; only one-third of U.S. states require a high school course in personal finance.
John Jacob Astor said, “Wealth is largely the result of habit.” Good money habits start early in life. Save a portion of all you earn, build an emergency fund, keep credit under control, live below your means, take prudent risks, have adequate levels of insurance, recognize the time value of money. Per Fidelity, those with $1 million or more in their 401(k)’s have been investing for over 30 years.
No one owes you a living. Financial independence is a do-it-yourself project, not that of parents, society at large, or the government. It takes work and diligence, plain and simple!
Lewis Walker, CFP®, is a financial life planning strategist at Capital Insight Group; 770-441-3553. Securities and advisory services offered through The Strategic Financial Alliance, Inc. (SFA). Lewis Walker is a registered representative and investment adviser representative of SFA which otherwise is unaffiliated with Capital Insight Group. He is a Gallup Certified Clifton Strengths Coach and a Certified Exit Planning Advisor (CEPA®).