The term Financial Literacy has become a term without a true meaning. When people hear the words they automatically think the qualifications of financial literacy are some silly American bench marks that say you are fully on your way to achieving the American dream.
Financially literate people were the ones who answered yes to the following questions. Do you spend less money than you earn? Do you own a home? Do you invest in a retirement plan or the stock market, are you upwardly mobile (made more money this year than last year).
The benefits for being this type of literate were really easy to define. You had a savings account that was always building. You were a respected homeowner. You have a high credit score, and you were on track to retire long before 65 years of age.
But now in the light of the financial downturn we are finding out some very interesting things about this brand of financial literacy and we are finding out it is not enough to sustain us and our families in the new economy. You could have done everything right according to the old rules of literacy and you still would have gotten seriously hurt when the economy turned.
Don’t believe me. Think about how many financially conservative people lost over $100,000.00 in equity when the real estate market crashed. How many people lost 30% to 50% of their life saving when the stock market crashed? How many people would lose everything if they were ever found liable in a law suit because their assets really are not protected? How many people are in financial ruins after 9 months or more of joblessness?
Were these people financially illiterate? I think not.
I think people who suffered these loses are actually in the majority. And by the old definition these people were financially literate and doing everything you needed to do to become succesful in America. So what happened and what can we do to create a financial literacy that doesn’t leave so many people unprepared for the possibilities of life.
What happened was simple. Even the financially aware, planned for a world where things stayed the same or got better. No one expected that anything could go wrong or that everything would go wrong at the same time across the entire economy. People planned to earn the same money, live forever, and ride the stock market and real estate waves into a financial paradise. When the reverse happened there was no plan and the government and the banks changed all the rules.
The new financial literacy starts when the maximum protection of your life and your dreams. After you learn to shield yourself from loses in the stock market, real estate crashes, and law suits, then and only then, you are permitted to talk about growing capital through sound and intelligent investing. It’s not a sexy hype filled strategy but it works every time if adhered to because it doesn’t require everything to go perfectly. In fact, it counts on a lot of things going wrong in life as it tends to happen.
According to the true rules of financial literacy, you are one market downturn away from financial ruin. I know, I’ve been there and it’s not until you follow all the wrong rules perfectly that you understand just how imperfect conventional wisdom really is.
It should not have cost most of working America their life savings to discover the holes in the plan but we learn the most from lost.
If you aren’t sure where to start you should call me so I can share some of the best resources I have found. The new financial literacy teaches you how to keep your future safe and grow your assets while enjoying your life. It teaches you how things work and then ask you to weigh that knowledge against your current and future plans. Best of all when the rest of the world is in turmoil your family is safe and protected. Your plans all work out if you live to 100, die young and leave a family, or get sick and can’t work. It works if you get sued and are dead wrong and liable. It works if you lose your job or your business fails.
That is a financially literate plan. And if you don’t have a plan that works in all those circumstances then you don’t have a great plan and its going to catch up to you. You have to be honest with yourself and your family about what type of plan you have. And you need to understand what true financial literacy is not a matter how much capital you have.
Financial Literacy is dead you have gone far too long without knowing it.
Manager of Wealth
Wealth Wellness Wisdom