Financial illiteracy breeds financial idiocy

From the time you’re sucking your thumb in daycare until the time you receive your diploma from high school or college you’re provided with an education to make you a well-rounded and hirable person. A person who has the skillz to pay da billz skills to achieve success in the workforce. When you’re in school and you think to yourself, “Why do I need to know this crap?” It’s because the people that have come before you believe that this is the knowledge that will help you land a career.

You already know what the point of being successful in the workforce is: Money, Money, and more Money. Typically, the more well-educated you are, the more money you will make. Yet some of the highest earners in the country (and the world) are in debt. Mo money, mo problems, right? A family making $30k annually, who are in debt, might look at a family who brings in $500k annually, who are also in debt, and think “If we made that much there’s no way we would have debt”.

What this family doesn’t understand is how people are affected by lifestyle inflation. To bring those people up to speed, lifestyle inflation is basically the increase in your expensesas your income increases. This essentially negates any pay raises. People that are affected by lifestyle inflation can go from making $1,000/year to $1,000,000/year and still be in the same financial shape. These people will be followed by a life in debt, as most people’s spending habits are only accentuated with increases in income.

How do you combat lifestyle inflation in our consumer-driven economy? Is it possible? Is there hope for the younger generations?!

Financial education (whether self-taught or classroom-style) is the most effective way to avoid lifestyle inflation, and more importantly to learn how to build wealth. Would you go into a job interview without the appropriate skills for the job they’re hiring for? Hell no, sucka! So, why would you start earning an income without knowing how money actually works? I don’t care what you’ve heard, or what you’ve learned in the past. Personal finance can’t be learned in 5-minutes, because it’s a lifelong lesson and it’s the most important information that no one ever teaches you.

I don’t know what the exact reason was that I got into personal finance myself, but it’s something that I’ve been passionate about for a few years now and I can honestly say that I know almost nothing about the topic. I know enough to write about it, and share some of my experiences, but there is just so much to know and understand that I don’t think anyone could ever know it all. Including me. Not even the big finance gurus that you may have seen on TV know everything.

There was something that happened, though, when I started to care about my financial self-education. My debts started to disappear, and eventually I had almost $100,000 between investments and savings. That wouldn’t have happened if I had remained financially illiterate. I probably would have continued my trend of living paycheck to paycheck, buying luxury items, and eating/drinking the rest of my money away. Financial idiocy made me spend all of my money while I lived my life in-the-moment. “I’ll start saving for my future tomorrow”. Yeah right..

I wouldn’t expect anyone who just started caring about their finances to become immediately financially literate. Maybe “financially aware” would be a better term for those people who strive for financial literacy. The important thing is simply to want to strive for financial literacy, so you can truly understand where your money comes from, where it goes and more importantly how to make more of it.

I think it’s fair to say that most people look at financial awareness as the point where life is no longer fun. It’s the moment when you realize you have to make cutbacks, as you concede to a life of boring nothingness. I, on the other hand, look at all of the money that I’m saving by not going to the mall, by having paid off vehicles, by not having cable, as an investment for my future. The more money I save and invest when I’m younger, the more I’ll have to spend when I’m older. It’s that simple.

I’m going to get off my professorial soapbox and instead of teaching you directly how to become financially literate I will give you a few resources that will help you in your quest for the grail.. or financial knowledge, either way.

  • My blogroll — Check out all of these other blogs to learn a little bit about finances, tips on how to save money, how to invest, and how to generally improve your life. Some of these people are in the debt struggle. Some have retired early. Some have mastered their personal finances. They all offer their financial story from a different standpoint, and overall they have great stories to tell.
  • Your Money or Your Life — I can’t even explain how much this book has helped our family’s finances. You really think you know how money works, but you may realize that everything you’ve ever learned is wrong. Money equals time. Every hour of your life has a monetary value. This book changes lives!
  • Rich Dad, Poor Dad — Another amazing book that proves that high income earners aren’t always the smartest people when it comes to finances. The author tells the story about how he learned how money worked from a man, who from an outsiders perspective, looked poor, but was actually worth millions. He just knew how to make his money work for him. You can too.
  • Reddit r/personalfinance — This is where my desire for financial knowledge really took off. Sometimes I knew the answers to the questions that people were having, and sometimes I had questions that I couldn’t find answers for myself. If you’re not a fan of Reddit, you may be surprised by how friendly (most) people are in this community.
  • If you were a fan of this post, please check out this list of all of my previous posts. You may find the answers to some (or all) of your existing questions, or you may learn something you weren’t expecting to. Feel free to email me with any questions that may be too personal for the general public. Happy learning!

Leave a Reply