Why People Hate Dealing with Money
Financial Literacy. It often invokes boredom, stress, and frustration. Does it have to?
For most professionals who work in the finance world, the feeling of not being able to pay the bills is theoretical. There is often the idea that if people just had the knowledge of how finance worked, they would be able to right their financial ship and pull it together. This way of thinking is a world away from the realities that many people face. Illness, family challenges, job loss, natural disaster — there is an almost endless list of reasons that people fall behind the proverbial eight ball.
I grew up in a family where my father was a small business owner and my mother was a school teacher. Both were extremely hard working and intelligent people. Business was sometimes good and sometimes not good- which meant we sometimes had enough money and sometimes we didn’t. As a kid I learned to let the answering machine pick up the calls after having had some very stressful and unpleasant calls from bill collectors (who don’t mind leveraging the fear of a child to make sure the money is collected). I could see how much the stress of not being able to make ends meet took its toll on my parents.
For some people their dire financial situation could be as a result of poor planning or decision making (i.e. human error — and we all make mistakes). For many it is about life happening — and being plunged into an unforeseen situation that results in massive debt or other financial struggles. How do we bridge these gaps and create a world where people can better prepare for life’s unforeseen challenges, make more informed decisions, but also not pretend like there is a magic solution to make everyone’s financial situation ok immediately?
I once had someone respond to one of Pefin’s social media posts by saying “I don’t need an app to tell me I am broke”. This, to me, was a stark reminder that in many cases people feel like their financial situation is hopeless. The love/hate relationship that people often have with their finances is very similar to the relationship that many people have to food and dieting- it feels like something we should do- but it is painful and unpleasant, and the backlash when mismanaged only digs a bigger hole.
As a young adult with two small children and a husband away fighting in a war, I also learned about bad decision making. That justification of going out for lunch just one more time — because life is hard and you want a break- but charging it on the credit card with the ever growing balance, ultimately leads to a very large debt. That cycle of self-pity-stress-spend-regret-repeat played itself over and over again. When the day comes to pay the piper and you have no ability to borrow more- but you have to start paying off the debt- it all can seem hopeless.
As I have said before on this blog, to this day I get hives when I have to write a check- so many years of worrying about whether it would bounce has clearly taken a toll on my thinking.
There are a thousand reasons why a person may find themselves in a challenged financial situation. The question really is, what to do about it. Here are some thoughts:
1) Be realistic. There is no magic wand, no silver bullet. There may be real reasons why today you can’t save for your retirement- you have a mortgage and small kids in daycare perhaps. You have huge student loan debt that you are struggling to pay down. None of that will miraculously go away- but the good news is that life is not static. If you can’t save today, make a plan on what you will do when some of those factors in your life change. For example, the kids won’t be in daycare forever. If you resolve to use the daycare money for your retirement fund you can make up for some lost time. Getting a realistic idea of where you are today, and what levers and dials you can play with in your financial life in the future- if not today- is why we built Pefin. Starting with dealing in reality is the most important first step.
2) Leave the theory to the economists. And in addition, don’t waste time on what you don’t need to know- unless that is fun for you. So many people feel like their finances are a mystery; how the economy and markets work is totally opaque, and how to plan for what matters most to them is a black box. Rather than trying to become an expert in finance, what you need to be is an expert in YOUR finances. Theory is not really relevant, and your situation is totally unique to you. Getting up to speed on exactly what is your situation, factoring in what matters to you and what you are trying to achieve, and then making a plan to get there is all you need to know about finance. Learn what YOU need to know because everyone’s situation is different.
3) Have a plan. Not just a budget- although that is really important, but a plan for how you are going to make sure you can retire comfortably, send your kids to school if that is what matters to you, buy a house, get married, have a baby, start a business, travel the world- whatever it is that is your destiny. Without a blueprint for how to get there it won’t happen- and almost all plans require some level of funding. If you need motivation you can find many, many stories online about people who have found extraordinary ways to get themselves sorted out on their finances to achieve their dreams. You can do it too- and with some guidance it may not have to be such a herculean effort.
4) Use the right tools. If you were building a house, you would have a plan, but you would also make sure you had the right tools. Building a sound financial future is much the same. To make good decisions about your financial future, you need to have a holistic picture of your situation today as well as in the future. You should have advice that is fiduciary- in other words advice that is really best for you. It should be affordable (and watch out for hidden fees!!) — because you don’t want to pay more to get financial advice than you are going to reasonably expect to recover! Pefin was built precisely to give people the tools they need to get tailored solutions for their financial challenges.
Financial literacy shouldn’t be theoretical. You need answers to get you from today to where you want to be. Taking baby steps every day towards your goals will get you there. Removing the stress, and frustration is key- and there is nothing at all boring about living the life you want!
