According to a 2017 study by Careerbuilder, 78% of U.S. workers live paycheck to paycheck in order to make ends meet, nearly 75% of workers say they are currently in debt, and 1 in 4 workers do not set aside any savings each month. Frankly, I’m not sure which one of the above findings pisses me off the most, but I can say that each one of those items contribute to why we started Mindful Cents. Unfortunately, our society worships consumption, a bigger is better mentality, and a must have this right now even if I can’t afford it mentality. We thrust hundreds of thousands of dollars of debt onto 18 year olds for the promise of a piece of paper. We get swindled by salespeople who show us shiny investment objects while their hands reach in and grab money from our pockets.
Why does this happen? Our society places no importance on financial literacy. With even a tiny amount of financial literacy, it’s easy to see through the bullshit that a lot of “financial products” espouse, figure out whether you’re overpaying for something or if the things you have were even worth paying for in the first place, and if a piece of paper is really worth the years of your life it will take to pay back.
The Financial/Debt Industry
Speaking of the all-important piece of paper, college graduates in 2000 had a total of $100 billion in total in debt outstanding. In 2020? $1.6 TRILLION. Has education gotten 1600% better in the last 20 years? This is combined with the facts that real wages (adjusted for inflation) have not risen since the early 1970s, the rise in tuition costs have outpaced inflation during that same period, and technology (think YouTube) makes it much easier to learn something. I’m not here to explicitly say that kids shouldn’t go to college, but they should be realistic on the return on investment before committing to a decision that could have ramifications for 20+ years and incur debt that cannot be forgiven even in bankruptcy.
The financial industry is another industry that has built its foundation on its customers’ financial illiteracy. For a simple 1% or larger fee, a money manager can put your money into complex financial products sold to the money manager by salespeople. Both the salespeople and the money manager get a nice commission (kickback) for putting your money into this product, and the money manager then skims 1% off your total amount being managed. Large investment companies make a killing off this scheme, despite the fact that the financial products are generally inferior and only complex to make the customer overwhelmed and afraid to handle their own money. If it were that good, why wouldn’t the money manager just put all their money into the product and keep the secret to themselves? Additionally, a customer statistically has greater than a 90% of beating a money manager by putting the money in a stock index fund for only about a .04% management fee, but I’m sure money managers conveniently leave that out of their pitch.
What about regular banks? Without regulated consumer protections, banks have made money at near-criminal rates from consumers that have not “protected” themselves by not saving and paying off their balances on credit cards, pay-day loans and other high-interest loans in an effort to consume quickly or generate quick cash for emergencies. “Maintenance Fees” are also taken from people that don’t keep enough money in their account. I’m not sure what kind of maintenance is required for a bank account, but I guess it sounds better than a “poor tax”.
Another insidious result of financial illiteracy is wage enslavement. According to a Harris Interactive poll 80% of respondents did not feel “very passionate” about their jobs. Of this 80%, it is not the respondents that passionately hate their job that worry me, but it is the likely larger percentage that are mildly dissatisfied with their jobs but not dissatisfied enough to make any changes. Due to debt, consumerism, or other forms of financial inflexibility, their creativity has been stifled over years of drudgery that have slowly worn them down into corporate drones. They accept three weeks of vacation a year if they’re lucky and only take them when someone else allows them to do so. They do just enough at work not to get fired but are not fulfilled. Anything that someone does for over 40 hours a week (and thinks about for many more additional hours) should be done with passion. Anything less is a massive waste of time, energy, creativity and resources.
The Power of Choice and Other Lasting Benefits of Financial Literacy
This is where financial literacy, a solid financial plan and the power of choice that comes with possessing those two items comes into play. With the burden of debt and low savings lurking in the background, it is hard to take any big risks along the lines of changing careers, starting a new business or even just taking some time off work to explore new interests or travel. Removing debt while building a good chunk of savings brings the power of choice to move in a different direction if someone is in the search of fulfillment and not finding it in your day-to-day routine. It reduces the stress of what will happen when something bad (like a pandemic) inevitably happens so you are not relying on the decisions of the government bureaucracy or asking friends and family (or going deeper into debt) to make ends meet.
Once a good financial plan has been implemented and carried out for a long period of time, and its results bring you increased financial flexibility, there might be more money in the plan than what is needed to live a meaningful life (this definition will be different for everyone). It is at this point that the power of choice shows itself in the difference that can be made when employing the extra money in the financial plan toward people or a cause that matches your values. This can take the form of a loan or (ideally) gift to a friend or family member in need, a donation to a non-profit whose mission you support, or an investment in a small business. The ability to make a positive difference in your life and the lives of those in your family and community grows exponentially with financial literacy and the fruits of good financial management.
Teaching Financial Literacy
How do we teach financial literacy? Unfortunately, as there are many “successful” forces out there profiting off collective financial illiteracy and consumption, it is not the easiest fix. We would like for the information we teach to be common knowledge, and we will continue to preach the message until it is common knowledge.
In the future, we are hoping to see more financial education in schools and as a benefit in workplaces, and these are two areas we will be focusing on as a company moving forward. We see a massive benefit in helping younger people discover and take advantage of the time aspect of compounding interest and trying to give them the information that could prevent a potentially huge financial mistake of going to college if they are not interested or ready. We also believe that a workforce with less financial stress and uncertainty will yield greater productivity all around, and we want to do our part to contribute to those people.
We have provided the resources that we used to teach ourselves about money below, which was an effective way for us to learn as there were not any college classes or courses provided by financial institutions that we readily found to teach us this information. We recommend the books and podcasts mentioned below as a good starting point to figure out where conventional wisdom has it wrong and what changes you can make based on your current situation.
Financial Literacy Resources
Books:
- I Will Teach You to be Rich – Ramit Sethi
- Money: Master the Game – Tony Robbins
- The Simple Path to Wealth – JL Collins
- Total Money Makeover – Dave Ramsey
Podcasts:
Mindful Cents 