The New York Times published an article recently about the stigma of not having any knowledge about personal finance at the age of 29. Or as the kids would call it, not being able to money, or something like that. One statistic jumped out at me: Only 24 percent of millennials have “basic financial knowledge,” and just 27 percent are getting professional financial help (according to this study).
Those numbers don’t surprise me. Generally, millennials are doing traditional “adult” things – like getting married and buying homes – later in life. They spend their 20’s treading water, saddled with student loan debt and navigating a very different economy than their parents did. But they are also the most information savvy generation in history, having grown up with the Internet and the knowledge that they can access nearly anything in seconds.
Personally, I was never taught that much about money, beyond saving coins in a piggy bank. My parents modeled good financial behavior though, and for the most part was doing about average until my mid twenties, despite not having any idea about things like budgeting and investing. I think that’s probably where a lot of people are – managing their money without realizing it and thus not knowing how much they could improve their situation with just a little bit of effort.
Basic Financial Knowledge
The study is vague about what exactly constitutes “basic financial knowledge” other than “basic concepts around numeracy and mortgages…and more complicated issues like basic asset pricing, inflation and risk diversification”. A google search for “financial literacy test” gave a couple different options, with questions that would fall under the study’s definition of basic financial knowledge.
After more thought, I kept getting stuck on the idea that questions about asset prices and mortgage rates are being used to determine the financial literacy of a generation that can’t even balance a budget, let alone even begin saving for a house or make informed decisions about investing. If you don’t know what the function of money is or how to budget for expenses or evaluate cash flow then you probably feel like investing (for the long haul, not stock-picking-to-make-a-lot-of-money-quickly) doesn’t have anything to offer you.
Seeking Professional Help
While there are plenty of financial situations that I’ll admit a professional is needed, the idea of a generation being in financial trouble because they aren’t seeking “professional” help is, well, troubling. There are two issues with going straight to a professional:
- The real problem is a lack of understanding of how money works and why cash flow is important, little meaningful thought about what role money plays in your life and your happiness, and the stigma that personal finance is either boring, too confusing, or something that you have to learn and devote a lot of effort to. In reality, your current spending, debts, income – all of it is you already managing your finances. You just don’t think of it that way and thus don’t think of it as something you adjust as opposed to an entirely new skill you have to learn.
- The answers to your problems are “shoulds”, not “need tos”. Someone telling you “you should start saving for retirement” isn’t very motivating, especially when you have no idea what your expenses are or how much money you have each month because you’ve never budgeted. What is probably okay advice comes across as an answer, but not to the real problem, and can be more easily dismissed as not applicable.
Like I said, I do think there are plenty of instances where a financial advisor is useful. But also remember that it’s called the financial services industry, as in, an industry that sells financial services. Navigating this world can be tricky if you don’t know where you are, where you want to go, and how to get there.
Self Reliant Personal Finance
When I was brainstorming ideas and deciding whether or not I really needed to start a blog, I came up with two reasons:
- Community and Accountability – There is an active corner of the internet dedicated to sharing ideas and thoughts about all things finance. I wanted to join that discussion and also document my own experiences and progress.
- Shouting from the rooftops that you can make your life so much better with just a little bit of effort. Everything I write here is based on the notion that personal finance is this big, complex topic that takes a lot of effort to “learn”, and how I want to help change that.
I mentioned earlier that I was (and in many ways still am) in a similar situation to most millennials. While I wasn’t doing terrible, I did have an “aha” moment where I realized by changing a couple things about something I was already doing, I could pay down my debt more quickly, save more money, and have a better understanding of what I wanted out of life and how to use money to achieve that.
That’s all it is. Small changes to what you’re already doing. Getting paid every two weeks and checking your balance to make sure you don’t overdraw your account turns into the recognition that money enters and leaves your life and that you are the main influencer on how that happens. Financing yourself starts with this realization.
Here is another link to the study mentioned above. It takes maybe 10 minutes to read but the results are pretty interesting!