How a Lack of Personal Financial Knowledge is Bankrupting Americans

It’s hard to tell when exactly it happened, but one thing is certain at this point in our society; we know little about balancing our own budgets and maintaining our own personal finances.

Perhaps our education system is to blame, as it has continued to decline in terms of quality and results. Yet it seems like the problem is even more basic than mathematics and economics. When people hardly even understand the need for a savings account or retirement plan, it’s unlikely that the school system, which isn’t even responsible for teaching our kids basic life skills, would be at fault.

Maybe it was just a cultural shift, where we all started using credit cards more carelessly, and looking at money more in terms of ideas , instead of actual numbers.

The people who have made those mistakes are now adults, as the children of baby boomers are now starting to have kids and are themselves, financially illiterate. The inevitable financial illiteracy of their children will fall on their lack of ability to teach them because of their own ignorance.

What caused that ignorance originally might not be measurable.

Yet regardless of what caused it, the reality we face is that many people have zero doctrines or beliefs when it comes to finances. They’re financially agnostic, believing and knowing that money exists, but at the same time are unwilling to believe or acknowledge that it has any bearing or impact on their lives.

Safety Nets

Instead we rely on a steady stream of safety nets and backup plans, that themselves are assumed and taken for granted. First, we have credit cards. If we get into a jam, we simply charge our credit card and move on. People don’t think of that as “debt” or “being in the red”. They just think of it as a solution, and basically look at it as if they were paying with cash in hand. For some bizarre reason the reality of having to pay that money back (usually with interest) doesn’t set in for people. They just use it and move on with their lives.

The second tier of safety netting consists of parents, grandparents and government programs. That’s not to say that it’s wrong to get help from any of these sources; though people tend to look at these as things that are supposed to be there, and that are sources of income just like a job is a source of income.

That kind of mentality encourages more carelessness in the midst of a personal financial setting. People just assume that parents or a government program will be there, and see no urgency in the midst of that false sense of security.

Leading to Bankruptcy

These thought processes lead people to make two key mistakes when it comes to their own money and financial situation:

1. They assume that their own financial stability isn’t crucial. – Why would you need to worry about how you spend your money when money hardly means anything to begin with? With so much to fall back on and no foundational instruction on what money should actually mean to them, people assume very quickly that their own financial integrity is meaningless.

2. They assume that money is primarily a vehicle to get what you want in front of what you need. – People might understand that money is required for things like food, rent, fuel and insurance, though they treat it as if its primary purpose is to provide entertainment and lifestyle maintenance. Certainly money does pay for those things, but they should be allowed to at the expense of a sustainable budget.

Even if thinking this way doesn’t lead to actual bankruptcy (and often times it does), it can cause people to live in a constant financial slog, where they buy a lot of stuff they don’t need, barely pay their bills and never get ahead. The problems it can cause are slow to show up and might not come home to roost until that person tries to make a major life change like start a family or retire, at which point they have no money in their accounts and no real foundation to build on.

What’s the solution?

While the school system can be part of the solution to this problem, the real “fix” must come from the individual. For any educating agent to be successful, whether that agent is a school, community college or even just an informative blog post, it needs to be met with an audience that desires to learn and to be informed.

Unfortunately, that type of audience is shrinking in our society.

Trends and cultural shifts ebb and flow, and it seems like generations inevitably correct and over-correct the mistakes of previous generations. In the meantime, resources and information for those looking for solid financial advice is out there.

We can only hope that more and more will be willing to receive it and put it into practice.

Jenny Sampson is a professional blogger that enjoys providing consumers with personal finance advice. She writes for TitleMax.biz, a leading Title Loan company offering bad credit title loans.

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Tags: Bankruptcy, Credit card, Finance, Money, Money management, Personal Finance

Category: Financial Education