When it comes to financial success most of us know we spend too much, borrow too much money, fail to invest enough and that when it comes to retirement we depend too much on the government. According to stories published recently we are actually borrowing more money than we have in our history and there’s just no indication we will be stopping it. The reality is that when it comes to advice about improving our finances we are actually drowning in a sea of information.
There are thousands of websites that will walk you through the process of creating a budget and thousands of books telling us to spend less, stop borrowing, and invest like professionals so we won’t have to live on dog food in our golden years. In addition, there are hundreds of blogs with tales of people who dramatically changed their lives financially by making positive changes. You want to develop better financial habits? There are TV and radio shows, podcasts and even computer-based games that will tell you what you need to do. So how can we say that our sorry state of affairs is due to a lack of education? Yet, at least once a day someone writes that the key to financial success is education.
Not the key
Sadly enough, there may be people who don’t understand that if you borrow money you’ll need to repay it someday and with interest. While most of us do understand this we keep borrowing anyway. Here’s another example. Most of us realize that we need an emergency fund but we don’t create one because something comes along that’s more important to us like a new backyard patio. We know it’s really important to pay ourselves first. There’s not a book on personal finance that really tells us anything we didn’t already know. The problem is that while we might understand what we need to do, we just fail to do it. This means the real problem here isn’t a shortage of education. It’s a shortage of motivation.
It’s like weight loss
The same is basically true of weight loss. You know what it takes to lose weight. You need to eat properly and exercise regularly. We already know this. Once again, education is not the issue. In fact, the reality is that we probably have too much information so we become bogged down trying to identify just the perfect answer.
Shifting the blame to someone else
If education isn’t really the key to financial success, why do people keep yelling over and over that the answer is we need more education? It’s probably because if you blame a lack of education it’s a way to shift the fault to someone else. Isn’t it great to think someone else is responsible for our wrongdoing? If our financial affairs are in a sorry state it’s easier to face things if we believe it’s not our fault. Most high schools don’t offer classes in personal finance. This means we can blame the government for not including it in our high school curriculum. That doggone government. When will it learn? You just can’t go wrong blaming the government for everything that’s bad in your life.
We can also blame the banks because they don’t educate us on the dangers of borrowing money. In fact, they encourage it because that’s how they make their money. You can read article after article that if you borrow $5000 on a credit card and make only the minimum payments it will take you like 20 years to pay off the $5000 but that doesn’t stop most of us from making just those minimum payments. In addition, we will collectively borrow more this year than ever before despite all the education and information available regarding how dangerous it is to borrow money. What this translates into is that being educated about the dangers of borrowing money doesn’t prevent us from doing it.
An alarming statistic
Our Federal Reserve recently surveyed 5000-plus people. The purpose of the study was to determine if their financial situation was improving along with our economy. While the survey revealed that most households had seen a mild improvement in their finances about 46% of them reported that they didn’t have enough money to pay for a $400 emergency. If they were hit with this expense they said they would have to put it on credit card and then pay back the money over time.
This is yet another example of where education isn’t the answer to financial success. There have been literally countless articles stressing the importance of having an emergency fund the equivalent of six months’ living expenses. The median income for American families last year was $53,657. If we assume this family’s one months’ living expense is $1788 (50% of net take home pay) this means it would need an emergency fund of $10,731.
Would you like to guess how many people have an emergency fund that size keeping in mind that nearly half of the people surveyed by the Federal Reserve couldn’t cover a $400 emergency expense?
The net/net of financial success
This means the real question isn’t why don’t we have more information available about personal finances. The question is why are we not motivated to do what we know we should be doing? Of course, there is no single answer to this. Some people are not motivated to save money but to spend it to emulate the lifestyles of people they admire – to eat at the right restaurants, drive the right cars and wear the right clothes. Advertising and the media is what robs some people of the motivation to do things the right way because it has created a new consumerism. When you move into a house with a 50s kitchen your key motivation is probably to redo it because granite countertops are the new standard. Don’t you feel you must have the latest smart phone, an automobile with built-in Wi-Fi or a 50 inch, 4K HDTV? The fact is that this new consumerism is what motivates many people and not cutting their spending, living on a budget and saving more money, which is what should be motivating us.
Finally, if you are like most Americans and have trouble saving money watch the following video with its five tips for saving more out of your salary.