Your Most Important Education Is Your Financial One

in #money4 years ago (edited)

I remember one time I was searching to find another loan to fund and I ran across this person who was making over $14,000 a month. If you don’t know Lending Club is a peer-to-peer lending service in which individual investors can buy pieces of a loan in chunks of $25. The investor is paid back as the payments are made.

Anyways, their financial details were so outrageous that I had to call my wife over to come see them.

Even though they were making $168,000 a year, they had $125,000 in revolving credit (credit card or HELOC) debt! I was just floored. They made nearly 3x what I do, yet still needed to bum some money off me. Needless to say I didn’t buy a part of their loan, I just couldn’t give some of my money to someone who owes that much on credit cards! I am pretty sure it was credit cards too, as HELOC rates are lower than the rates one gets from Lending Club.

I don't have a picture of their loan, but I checked out Lending Club to find one to talk about.

This person owes almost 7.5 months of salary, before taxes just to their revolving credit! If the rate is just 15% (lowish for credit cards) than the monthly interest is $810 (that's more than my mortgage)! That is nearly 10% of their income, more if you base it off what they get after taxes. To put it another way, they will have to work more than a month every year just to pay the INTEREST on the revolving credit.

Is the stuff they bought months or years ago still worth their labor today? Do they even remember what they spent most of that money on? Probably not.

Another thing to look at is their earliest credit line. In this case 1990. I take this information to guess their age, the earliest credit line being they were around 18-22, so 20 years old or so. This person is probably in their mid 40's and making a great income, $105,000 a year! You would think they would have ran out of things to buy long ago. They have had many years to become wealthy, but I imagine all they have are 'things'. Things they are paying interest on.

With hard work they can still dig themselves out of this hole and get something saved for retirement, but they are very far behind the curve.

Do you know anyone like that? They have well-paying jobs, yet are still living paycheck to paycheck? People that have dollar bills raining down upon them, but such little financial education to use it that the money just goes straight into the gutter?

Society wants your money. Billions of dollars are spent every year to create powerful forces of marketing to ensure that most of that money ends up back in their pockets. Also personal finance isn’t taught in schools, at least not in any that I have seen. You need to have someone in your life that will tell you the details, or have the motivation to learn it yourself.

My wonderful parents weren’t that great with money - not terrible, just not great. Financial education is something I had to go and learn about myself. Luckily anyone that wants to learn these skills today has to just get on the internet to read or watch videos about it.

But like anything else, actually following through is the hard part.

I must confess, in the past I knew what I should have been doing but never really did it as much as I should have. I am behind where I should have been, but as the saying goes “the best time to plant a tree was 50 years ago, the second best time is today.”

You don’t need to make hundreds of thousands of dollars a year to end up wealthy. There are tons of stories of old people who never made big bucks and then they die and it is discovered that they had millions of dollars of assets!

Here is one such tale. The story of Ronald Read who worked at a gas station and as a janitor who died with $8 million to his name.

If those people did it, so can you.

You just have to commit to it, because a little money and a lot of time is all it takes. If you want to speed the process up, just add more money.

If you need a place to start your financial education, here is a list of material that I think is worthwhile.

  • I Will Teach You to be Rich by Ramit Sethi – Good for the young crowd new to the game
  • Your Money or Your Life by Joe Dominguez & Vicki Robin
  • Rich Dad, Poor Dad by Robert Kiyosaki – A bit light on details but will get you excited
  • Dave Ramsey's Youtube channel
  • – Financial & Capital Markets section – Short videos
  • The Millionaire Next Door (currently free on kindle for Prime members) & The Millionaire Mind by Thomas Stanley
  • Think and Grow Rich by Napoleon Hill
  • The Richest Man in Babylon by George S Clason – Great audiobook version on Youtube
  • The Automatic Millionaire by David Bach

It is not right to take money from those with the motivation to earn it and give it to those that didn't. It is right, however, for all people to educate themselves as to how to go about obtaining wealth. If you are reading this you have the ability to educate yourself, no excuses.

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Hey @getonthetrain.

We all know at least someone who is in some type of debt or another and it can be hard on every facet of their lives. Funny thing is because of house prices going through the roof here in London for the past few years, you find many people are asset-rich and cash-poor.

The world economy is in a bit of a shambles at present. Hopefully things will change one day but as you say, the first and most fundamental change starts with you. After all, knowledge is power.

Top class job, my friend! :)

While I find home ownership to be a great thing, it is important to not get caught up in hype.

When the housing prices become out of whack compared to the normal salary of the area - watch out.
When everyone says the using prices can only go up - watch out.

Playing the housing game in that type of market is like playing that musical chairs game. The music stops eventually and the person that didn't sell their house gets screwed.

Great reading list! It's almost hard to imagine how some people treat their money, like the person you write about. You're right--everyone has to learn how to manage money.

Everyone goes to work to earn money, but so few actually know what a powerful tool it is. That is all it is too, a tool. Become skilled with its handling and you can build your freedom with it. Careless use of it and it can lead to you losing a limb.

Thanks for the comment! I am glad to give you rank 26 for it!

I couldn't agree more with the sentiment and the main message of this post. Thank you for writing it! At my school I'm teaching my (adult) students personal financial literacy, among other necessary subject, like language, computer skills and math. And at my previous school we invited two young talented educators who ran a two-days workshop on personal financial literacy with our students. I believe that financial education is VERY important at all ages and should be taught in schools, starting with primary school.

Financial literacy is so important because what matters more is how much money you keep rather than how much you make.

I believe it was in school, probably high school, that I was shown the power of investing. I see now that it is rare for this to be taught, but I was in one of the better American states for education based off test results. So I applaud your efforts to get in some quality financial education time with your students.

But still, the student has to WANT to understand it otherwise they will not listen.

Most people are just one big ball of debt and would be worth a negative balance if the house of cards falls for them. Just like the US Government

So true! Many people are just a few lost paychecks from everything falling down around them. It is like those buildings made for movies that are just a front with no actual substance behind them.

They have the best of everything, car, phone, house - but it is all on payments. People are conned into thinking they can afford it because they can make the payments on it. It is why car salesmen just talk about the payments and not the total cost. The fools aren't thinking it through!

Yeah I usually think about not making payments on things but after years of sacrifice sometimes I do wonder if I have made the right choice. Right now I'm in an annoying situation with my house to tell you the truth and tons of bills have been piling in. Including an issue with a tooth. I'm going to take my chances in Nogalas, Mexico tomorrow to get it worked on.

We used a dentist in Los Algodones that was awesome. You might go that direction instead. It's a well known dental hub. The guy we used is a Harvard grad, I think.

Thanks for the advice. I have a friend who grew up in Mexico and she has US and Mexican citizenship so she is going down there with me. The place we are going to was recommended to her by a family member so I kind of feel better about the situation than if I was just going to walk across the border and walk into a dentist office. There are a lot of dentist in walking distance of the border in Nogales as well.

Enjoy! We're supposed to go down again shortly. Wifey needs a lot of dental work done.

Perhaps we should look at our general level of self-discipline as well; although you are fully correct in that we do not teach the basics of financial knowledge, the sad fact is that even if we did my bet is that we would still have substantial parts of the community putting themselves in debt.

This is most likely the result of personality; theStanford marshmallow experiment correlated self-control in children with later success in life.

in the past I knew what I should have been doing but never really did it as much as I should have.

you and me both, brother

For sure people would still get in crazy amounts of debt, and I believe it comes down to personality - like you say.

You can lead a horse to water...

I did an article WAY back when I was still pretty new about the briggs-meyers personality and how well they save. Well, the extroverts did poorly and 'prospecting' ones did poorly at saving. The worst was when the two were combined E-?-?-P.

I am an INTJ, btw.

I'm on that ISTJ/INTJ line myself...probably why I like your stuff, LOL

I think the MBTI has been grossly misjudged by science ( it'd be nice to see who was funding the studies that discounted the MBTI), because from my own POV it's pretty accurate.

But maybe that's situational