The Road to Financial Literacy: Three Minuses, Three Pluses
Financial literacy isn’t something we learn in school, and most parents admit they feel unqualified or incapable of teaching their children about money. As a result, most of us are self-taught when it comes to learning about money. “Too often, like financial lemmings, we follow the trends, patterns, and habits of people around us without ever stopping to question why,” says Pamela Yellen, Financial Security Expert and two-time New York Times bestselling author.
Here, Yellen explains three pitfalls to beware, plus three questions that can help people make better financial decisions:
Pitfall 1 – Following the pack: We pick up what we know from our parents, coworkers, friends, books, blogs, seminars and talk shows. We follow the pack, but the pack often doesn’t know what they’re doing. Meanwhile, many “official” sources have a vested interest in where we put our money. “Much of the financial advice out there is focused on products, such as specific investments or retirement plan accounts, rather than on teaching you how the products actually work, and what the limitations and downsides of those products are,” Yellen says.
Pitfall 2 – Listening to the loudest voices / following the majority: Don’t make your decisions based on who shouts the loudest, and don’t follow the guidance of the majority just because it’s the majority. The majority doesn’t know any more than you do. The majority once believed that the earth was flat, and that man would never fly. As Mark Twain once said, “Whenever you find yourself on the side of the majority, it is time to pause and reflect.”
Pitfall 3 – Trying to educate yourself via the Internet: “The problem with trying to get a financial education by searching for answers on the Internet is that zillions of opinions don’t really add up to a holistic picture or understanding of personal finanes,” Yellen cautions.
“It’s like trying to build a car by pulling a transmission from one model, an exhaust system from another, and a chassis from yet another,” Pamela explains. “By gathering odds and ends and slapping them together, you’re more likely to end up with a rickety jalopy than a great, reliable vehicle. But that’s how many of us have approached our financial education.”
What’s the solution? Pamela offers these three questions to help people separate good advice from bad, and help lower your level of stress when making financial decisions:
- Will this advice give me peace of mind and let me sleep at night?
- Will this advice help me get where I want to go without taking unnecessary risk?
- Will this advice allow me to be in charge of my money and financial future?
Finally, remember to question what you have been taught as “conventional wisdom.” “Know that what you ‘know’ often just ain’t so,” Pamela says.