Financial ill-Literacy

“A man in debt is so far a slave” — Ralph Waldo Emerson

Suppose you earn $60,000 per year.  How much should you spend?  I truly hope you said at the very most $45,000 (after roughly deducting taxes and some savings for your family). If you said a number between $45,000 and $60,000 then hopefully I can change your mind today.  If you said a number over $60,000 then my guess is you are a government official.  Sadly, if this $60,000 income was the government’s, they would spend about $105,000! That’s because the government is spending nearly 175% of what they have. Yes you just read that correctly.  Not 1.75%, not 17.5%, not even 75.1%, but a whopping 175%.

Numbers fascinate me.  That is partly what led me to study accounting at Brigham Young University.  I do realize, however, that not everybody likes talking with numbers the way I do so hopefully I can entertain you enough that you’ll read to the end and hear me out.  If not, then you’ll be missing out!

I recently read two news articles.  One from the Wall Street Journal titled “Americans Short on Financial Know How” and the other “Americans to rack up $47 billion more in credit card debt this year”  from the Deseret News.  Both articles were very interesting and rather eye-opening as well.  Let’s look at the Deseret News article first.

Basically it goes like this: In 2012 Americans had less credit card debt than in 2011. Generally in the months from January to March consumers tend to pay down debt in large amounts, and then spending rises again the rest of the year.  In 2013 though, the paying down of the credit card debt was much lower.  In fact it was the lowest in the last four years.  Americans are living with more and more credit card debt.

“Debt is dumb.” — Dave Ramsey

Although the Deseret News article doesn’t mention what that credit card debt is being used for, it does point out one very important detail. “As people rack up more debt, more of that monthly payment will go to interest and the debt may become unsustainable.” Simply put, the less debt is paid down, the more interest you are getting charged.  That is dumb.  One of the the responsibilities that comes with growing up is learning to manage your own finances in a smart way.  That is only possible if you take a mature approach.  Maturity in finances is being able to separate what is needed from what is wanted; placing those wants off to the side if necessary. Sadly, from our federal government down to individual consumers, we are seeing less maturity and too much spending.  So what should be done? Increase financial literacy!

“Americans Short on Financial Know How” in the Wall Street Journal was based off a survey of 25,000 American adults (take the survey here).  It measured their grasp on concepts such as investment risk and inflation.  Unfortunately the average score wasn’t that great while at the same time revealing more interesting statistics. Of the 25,000 respondents, only 41% are spending less than what they earn while 55% are spending what they earn or more.  And of the younger generation,the one that is already strapped down with debt from the federal government, 43% said they have used forms of high-cost borrowing (such as payday loans) compared to 30% of the population.

“You must gain control over your money or the lack of it will forever control you [in the form of debt].”  — Dave Ramsey

So the secret is out.  Spend less than you make, and put some money away into savings.  Not going into debt is the best way to avoid it.  If you do have unnecessary debt though, don’t panic, and remember that the time to start working towards financial literacy starts now. There are plenty of ways to get some help.  A couple of them are through the LDS church website and Dave Ramsey’s website.

I hope your eyes were opened like mine to the state of financial illiteracy that we are seeing in today’s world.  Let’s make our money work for us, rather than working for our money, or lack thereof.  What are your thoughts on the current state of government and individual finances?  What are your tips for managing finances and avoiding debt? Let your voice be heard by commenting below!



4 thoughts on “Financial ill-Literacy

  1. I took the survey and got 5 out of 5! But that is only because i work at a bank. If I had taken fresh out of high school I probably would have failed!

  2. Well done! I got a 5 as well. I feel like financial know-how often seems too difficult for people, but the concepts are straight forward and very beneficial.

  3. It really is so crazy how as we’re spending money we forget the consequences. I know debt is also accumulated from unforeseen circumstances. So….save! I know there are situations you just can’t prepare for, but many you can.

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