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Yesterday, I enjoyed a hearty breakfast -pancakes, hash browns, bacon, and countless cups of coffee- with a friend. He and I are kindred spirits in every sense of the word. We talked about business, cars, home projects, basketball, and the sludgy, sub-par coffee we were drinking. And naturally, as it always does, our conversation shifted toward finance. While we conversed, a thought kept inescapably replaying in my mind:
Why isn’t everyone this comfortable and transparent in discussing their finances?
I am reluctant to craft a one-size-fits-all answer to this difficult question, as each person is different. Yet, April is Financial Literacy Month, which makes today the perfect time to explore this complex issue.
Personally, I have to force myself to think outside the box in order to contemplate the answers to the above question. I have benefited in countless ways from honest, transparent financial discussions with others. Each new conversation is an opportunity to expand my knowledge and discover new principles which will guide me on my path toward financial independence. Occasionally, I may even teach someone else a lesson to guide them in their journey. It is hard for me to fathom why others would not embrace such an open dialogue when it comes their finances.
After much thought, I feel the following societal trends are the primary barriers to the progress of financial literacy.
The Joneses Mentality
We all have that friend. He or she always has the latest iPhone, a new car, designer handbags, and has recently vacationed in some exotic locale. For even the most conscientious Superhero, this friend’s contagious consumer mindset is as dangerous as kryptonite. For the average person, keeping up with the Joneses borders on an obsession.
Furthermore, entering into a financial discussion with a person who has it all can be like pounding your head against a brick wall. It is painful, and it often feels as if it serves no purpose. As a Superhero, this is your sphere of opportunity. You can reach these people!
Consider this: Is the problem really based in desiring what others have, or does it reside in coveting the wrong things? If we could shift the Jones mentality’s focus from material goods, consumerism, and “stuffitis,” and onto comparisons of retirement accounts, passive income streams, and financial independence target dates, the American money culture would be revolutionized!
Is the problem really based in desiring what others have, or does it reside in coveting the wrong things?
Feelings of Financial Incompetence
You’re at a backyard barbecue, cold drink in hand, and you get trapped listening to someone overshare about the nuances of his chemical engineering job for two hours. Chemical engineering isn’t your field, and you don’t have the ability to add substance to the conversation, so you nod politely, smile, and look desperately for a way out of the conversation. Admit it – you’ve been there.
Unfortunately, many people feel the emotional weight of their own incompetence when it comes to their finances. Seemingly every nuance in the conversation exposes their lack of knowledge. Rather than voluntarily don the dunce cap, the average person would rather play dumb from the start than actually expose their naiveté when a conversation shifts to finance. I believe this problem points to the inherent failure of our public school system in teaching the foundations of personal finance.
Financial Samurai, one of my favorite financial writers, preaches the benefits of stealth wealth. I agree with him 100%. However, the progress and spread of financial literacy is often halted by those who are secretly wealthy simply due to their unwillingness to share what methods brought them to their current status. Note: Fortunately, Financial Samurai DOES NOT practice such a brand of stealth wealth, as his mission is to share what he has learned with others.
Furthermore, for the average person of wealth, how they got there is not a mystical secret. If the truly wealthy Superheroes would explain the power of living below one’s means, beginning to invest as early as possible, staying the course in a struggling market, keeping it simple, and allowing compound interest to do its job, financial literacy would improve dramatically.
Today, we share everything on social media, with up-to-the-minute updates on our day, pictures of our dinner, and selfies at the beach. In a sense, privacy is dead. Despite this cultural shift, many people hold their financial cards like a savvy poker player: very close to the vest.
In a way, these privacy concerns are closely connected to the concerns of those who practice stealth wealth. While I am private, to some degree, I am willing to tip my hand from time to time if it benefits a friend or furthers a financial discussion. In my opinion, the value of paying it forward outweighs my privacy in several situations.
Fear of the Future
For many, discussing finances is a reminder that they are unprepared for the future. The average American does not have enough saved for retirement. According to a recent article by the Motley Fool, the average American is woefully underprepared for retirement, with total, non-Social Security retirement savings of only $106,000. Following a traditional 4% annual withdrawal rate, this leaves the average retired person to live on just over $4,000 per year.
I get it. Discussions that remind you that you are destined to be on a dog food dinner budget are not fun. But ignoring the problem will not make it go away. Discussion can light a fire, inspire change, and break down the paralysis of indecision.
We have all heard the saying, “You can lead a horse to water, but you cannot make him drink.” This notion may also be applied to financial literacy. Without a desire to learn, grow, and implement basic principles in personal finance, the average person will remain in a state of modest financial literacy.
Superheroes, for the remainder of this Financial Literacy Month, you have a free pass to speak openly about financial topics and aim to make a difference within your sphere of opportunity. How can you do this? Start simply. Ask questions. Openly share about your own financial struggles. Speak about your lofty goals and explain how you intend to achieve them. Inspire someone else to believe that financial independence is possible. Together, we can Restore Order to the World of Finance.
Readers, what do you feel are the largest societal barriers to financial literacy? Where did you learn the majority of your financial lessons? Are you comfortable speaking about finances with others? Please share your thoughts and questions in the comments section!