What does ‘financial literacy’ mean to you?

In our talk story Friday, Tom Ehrenfeld mentioned how something really bothers him:

“”the creation of a new class of people who are in permanent debt. Between the relaxation of standards for credit card companies (which now charge usurious rates and an ever-escalating array of fees and penalties), the changes in bankruptcy laws, and the conversion of the debt counseling field from one of small local charitable agencies to virtual storefronts for for-profit hucksters, it’s bad. There are already alarming discrepancies in this country in the allocation of wealth, and the credit epidemic is eviscerating what’s left of the middle class. Obviously I believe in free markets and in enterprise, but not to the extent to which we’re producing debt peons.”

Well Tom is certainly not alone in his concern. This morning, I saw this headline in our Honolulu Advertiser, pulled from the Associated Press:

Experts see crisis in growing U.S. Debt

By journalist Robert Tanner

You owe $145,000. And the bill is rising every day.

That’s how much it would cost every American man, woman and child to pay the tab for the long-term promises the U.S. government has made to creditors, retirees, veterans and the poor.

And it’s not even taking into account credit card bills, mortgages — all the debt we’ve racked up personally. Savings? The average American puts away barely $1 of every $100 earned.

Our profligate ways at home are mirrored in Washington and in the global marketplace, where as a society we spend $1.9 billion more a day on imported clothes and cars and gadgets than the entire rest of the world spends on its goods and services.

One of the ways Tom has influenced my thinking a great deal in recent weeks is with the topic of financial literacy. More and more frequently my thoughts turn to the responsibility I must accept in my own coaching and in speaking on various Managing with Aloha topics as they relate to income generation, financial freedom, and reducing money-induced stress.

On a personal front I’ve taught myself to keep only two credit cards (one for my business, one for anything else) and they are usually in a drawer and not my wallet; I only use them if I know I can pay them off when the bill comes. I will not incur any long-term debt other than my mortgages, including paying for my kids’ college educations. I’ve learned to be generous with those sort of “free tips” on what I do being freely suggested to my clients. Those simple strategies which enter over coffee, or as “by the way” asides/ conversation openers in productivity or business budgetary discussions, will continue as, “Now, how would you apply this same sort of thinking to next year’s budget? … How will you communicate this to your team in those strategy sessions you have scheduled for next week?” These times will often throw wide open the door to our coach-client relationship being turned up a notch in both content and candor.

I coach managers to be financial coaches for their staff, both as business partners, and as caring, concerned mentors:

“Today, I often recommend managers suggest The Automatic Millionaire by David Bach (Broadway Books, 2004) to their employees who need help with managing their finances and breaking out of the stress that money can create.”

Managing with Aloha, page 138

Yet those things are easy; I need to do more.

I had begun to do so several months ago when I wrote the Managing with Aloha manifesto for ChangeThis.com, and shared my thoughts therein on realistic business models. However I barely scratched the surface of the discussion (I’m referring to the section which starts on the bottom of page 4 of my manifesto.) Reading this AP article today, and having the benefit of hearing Tom’s passion, I know I must do more.

What are you doing? What more will you be doing? Let’s talk story and share our ideas.

More from Robert Tanner’s article:

David Walker, who audits the federal government’s books as the U.S. comptroller general, put it starkly in an AP interview:

“I believe the country faces a critical crossroad, and that the decisions that are made — or not made — within the next 10 years or so will have a profound effect on the future of our country, our children and our grandchildren. The problem gets bigger every day, and the tidal wave gets closer every day.”

With this post, I am starting a new Talking Story category called Financial Literacy. However take a look at all the others I so easily added it to as well; gives you pause to think of all the connections, doesn’t it.

Related post:
Will your kids be able to deal with their money?
And this one really goes back into the archives of my old website:
Our Ho‘ohana for May of 2004: On Money.

Comments

  1. says

    Rosa,
    Geat idea!
    I think most of coaching is about urging people to take responsibility for their own actions, here and now. What the financial industry manages to suggest is that debt allows you to have whatever you want today, while postponing the responsibility for paying until sometime way into the future. Look at all the advertisements that offer the “Don’t pay a thing until 2006/2007/2008/2009/2010” approach. They imply this credit poeriod is free. Of course, it isn’t, or they would quickly go out of business.
    Most financial literacy is simple commonsense of the “there’s no such thing as a free lunch” variety. What frightens people is the idea that it has to do with Math! Logic will do the job, even if you can’t reliably add two and two.
    Coming to the USA to live from Britain, I was initially appalled by the attitude here that says you should never need to wait to afford anything. Then I saw all the messages from the financial industry telling people over and over again debt is simple, easy and good. It is…for the financiers!
    My suggestion is that financial literacy is part and parcel of taking responsibility for our personal actions — the only part of our life for which we are, in reality, fully and completely accountable at all times, whether we like it or not.

  2. says

    Rosa, this is a sad state of affairs, but one that grows bigger with each passing day. I was never in debt until after my divorce…and even then, the debt was small and manageable. Today, with the borrowing of a substantial amount of $$ for my business, I am indeed, a debitor of the highest sort. Yet, I don’t feel the need to apologize. My business would not be here had I not been able to secure an SBA loan to buy equipment and set up an office.
    My goal is to be out of debt in the next 3 years…both personally and in the business. It’s astounding to me that banks eagerly give credit cards to almost anyone, that car dealerships finance cars without blinking, and that — as Adria says — people in America don’t understand the “wait until you can afford it” principle.
    And yet — being a business person requires me to be in debt, at least temporarily. I would hate to think that I should give up my dream of creating a good, decent place for folks to publish their dreams (in a book that we will help them market appropriately) because it required me to finance my business for a few years.
    People need to learn fiscal responsibility, there is no question about that! But, sometimes, debt is necessary. Along with a good business plan that forces you to examine exit strategies. It’s not ideal, but there you are.

  3. says

    Definitely yes – this world of ruthless financial pushers and consumption addicts need people with a strong economic literacy. Somehow I think that those people who are capable of taking care of their own small scale business may contribute to a better and more reasonable distribution of wealth – whereas the cult of financial speculations may lead to greed and a life in needless luxury.
    Some years ago I wrote an essay called The necessary, the conventient and the absolute superfluity (in Danish, published in the anthology Hvis er Barnet?) It is about child families with a need to make priorities while their children are growing up – for each time you’re buying stuff that is not absolutely necessary, please consider how many hours less you could have been working this month, and instead spent this time together in good company with your children.
    I come to think of this when I think of many new entrepreneurs working day and night to get their things done, and sometimes letting the life with family and friends suffer.
    This is also part of our everyday economy – how to spend our time wisely:-)

  4. says

    Wow, terrific comments, thanks so much for weighing in. This just goes to confirm my belief that this issue of financial literacy as it plays out in both our business and personal lives is huge. There’s nothing morally wrong with debt, which used properly is an effective financial tool in both arenas. Yet unfortunately we are living in a great epidemic of debt, and are in need of several things. We need much greater understanding of the promise and perils of debt (and investment), and we need to find some way to discourage the growing portion of our economy which is rigged to make money only through controlling money. Sure, this is an age-old issue. But the credit industry is a good indicator of the unhealthy trend in this area.
    While on the one hand credit was not as widely available to individuals 20 years ago, and so there’s a thread of truth in the claim that recent years have brought upon us a “democratization of credit,” the costs of this greater risk are borne out by growing fees, penalties, and exorbinant rates as compensation.
    And while financial common sense should be common-sensical, I can attest, and I am sure that many others can, that it rarely is. I’m not advocating irresponsibility here. I just believe that the penalties for not knowing the score are greater today than ever.

  5. says

    Hi Rosa,
    Thanks for sharing this post with us. Unfortunately, financial literacy is not something that our country puts much emphasis on.
    There is an organization called the Jumpstart Coalition (www.jumpstartcoalition.org) that works to promote financial literacy and lobbies our government officials to include financial literacy programs in our grade school curriculums.
    In their 2004 Personal Financial Survey of High School Seniors they found that teens learn most (58.3) of their money management skills at home.
    As noted in your previous post, we need to start at home and teach our children how to handle money and credit and build long-term wealth.
    It’s not any different at the government level. If we teach our children financial literacy and fiscal responsibility today, when they become our political leaders 10, 20 or 30 years from now we might have a snowballs chance of living in a solvent country; one that provides the same liberties and opportunities that we enjoy today.

  6. says

    What does Financial Literacy mean to you?

    Rosa Say had a post a few days ago in her Talking Story Blog asking this very same question. If you have looked at our web site, you know that this is something that I have been passionate about for

  7. says

    Ken, I have also found that financial literacy is something managers can be much more proactive with in coaching their employees on as well. It is part of a subject I mention frequently; treating your staff as business partners. We teach and coach on a professional level, and the lessons are simultaneously learned on a personal level. You have my total agreement when it comes to our youth, however if we are more responsible with our adult education we need not wait those 10, 20, or 30 years.

  8. says

    What does ‘financial literacy’ mean to you?

    Nowsday,  I always come  across advertisement to ask people to spend  their future money. Borrow and buy your favourite thing now. But they never mention about the  huge interest that one has to bear later.   I guess only people with financial literacy…