Sunday, 8 June 2008

Financial Education

I read Rich Dad, Poor Dad a couple of years ago. It was interesting enough but I can’t say I learned a huge amount I found immediately useful; I might go back and read it again sometime to see if that has changed, but I doubt I'll ever be the wheeler-dealer type he describes..

One idea it did put forward that struck a chord with me though was about the lack of financial education in our schools. I gather it’s much the same, if not even worse, here in the UK as in the US. We are taught to do mathematics, but not how money works; English, but not the language of finance; history, but not the impact of history on the financial affairs of the average person.

Well, perhaps a bit of the last. I remember learning that during the Depression people were really poor because there were no jobs because the stock market had crashed. What I took away from that was that the stock market was too risky to put money in. I never questioned that millions of people do all the time and that many of the wealthiest people in the world are very much involved in investing in the stock market. For a very long time I was certain I would never be one of those people, right up until they came up with 401(k) and 457(k) plans.

I would have been right that investing wasn’t for someone heavily in debt, which I was for a short time due to inheriting other people’s responsibilities. I would have been right that it wasn’t for someone without an emergency fund, which I often was in my 20’s. This wasn’t because I didn’t save, but because I handed that entire savings over to my husband every year to fund our annual driving vacation. Looking back I think I probably should have expected a bit of change at the end of the holiday, but either it didn’t occur to me or it wasn’t worth the trouble I would have got to have asked him for it. I can’t believe I actually did that year on year for nearly a decade. But that is the past…

There wasn’t anything much mentioned in my home economics class. I remember a cooking lesson or two, a lecture about nutrition and spending ages sewing and ripping out the simplest apron ever designed, but no mention of money. Mom taught me a little – what little I would let her. I remember getting my first credit card from Sears. It was a little scary spending money without writing a check; it just seemed so easy I was sure it was dangerous. That wasn’t far wrong you know! She encouraged me to have a little spending spree – run up a bit of debt, but then to very carefully pay it back down. She said it was important to establish a good credit rating and she was right. By my standards today I’m sure I gave up far too much money in interest – I aim to pay nought these days – but I always did treat my credit cards with a great deal of caution. Beyond that, she provided a sterling example of financial management. I remember her balancing the checkbook every month; making grocery lists and sticking to them; making meals from scratch; paying bills on time and when she couldn’t, talking with the creditors; saving up for the little things she wanted, like pieces for her silver coffee service or concrete squares to extend the patio in the back yard.

The first bit of financial education I can remember was attending a free seminar by Charles Givens (or perhaps one of his staff, I don’t recall). The aim of that of course was to get you to subscribe to his newsletter or whatever, which I did not, but I took copious notes of the lecture. I remember working my way down the list of suggestions, using every one I felt I could manage – even then the lack of a financial education was limiting. The main things I remember using were not insuring the car comprehensively once it has value dropped below a certain point and canceling the lender-required mortgage insurance once I had a sufficiently large equity in my house.

I have off and on sought to educate myself financially. One decision that wasn’t too hard was to have a 15 instead of a 30 year mortgage on the first house I bought, the one in Salt Lake City. It meant the payments were a little uncomfortable for a while, but I’d been pushing my comfort zone for the last 18 months to save up the down payment and I knew my income was going to increase regularly, so I bit the bullet. I couldn’t think of a single other decision I could make that would save $44,000.

Once I moved across to the UK and found that an accountant wanted 1200 pounds to prepare my tax returns, I decided to do it myself. I’m still having to learn something new each year and it’s almost always what I consider bad news and this makes my tax preparation one of the most difficult things I do. I have at times given up and got help, particularly when I discovered I’d not paid UK tax on my US rental income for years and years, and payment was required, with penalties and interest.

So what do I wish I’d learned earlier and still want to know? What do I think should be taught in school

 Basically, how to find a career that is right for you and even better, ways to keep your options open to diversify as well as advancing in that first career

 Smart money management and the benefits thereof

 Recognising the aim of advertising – how not to be brainwashed

 Financial management beyond debt avoidance and simple savings accounts, ie, investments

 Tax preparation and record keeping

The sad stories about the financial problems people get themselves into being spendthrifts aren’t just sad for them; I can’t help but wonder if the whole sub-prime mortgage market could have been avoided if a young person’s education included a bit more financial savvy. There will always be people who are stupid with money, but perhaps there would be fewer with a bit more specific information provided at an early age.

So I’m still working to learn how things work, even in this last half of life. My aim at this point is to make what money I have work it’s hardest for me and, if I end up taking on further employment, to make sure it’s something I can happily chose to do.

No comments: